If a firm is a perfect competitor in its product market, the marginal physical product of a factor multiplied by the product's price equals
A) marginal revenue.
B) total revenue.
C) marginal revenue product.
D) marginal cost.
E) marginal profit.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker, meaning that it can sell as much as it wants at the market price. Therefore, the marginal revenue of the firm is equal to the market price. In addition, since the firm is a perfect competitor, the marginal physical product of its factor of production is constant. This means that an additional unit of the factor will produce the same amount of output as the previous unit. Combining these two concepts, we can see that the marginal revenue product of the factor of production (which is equal to the marginal physical product multiplied by the product price) is equal to the market price. Therefore, the correct answer is C) marginal revenue product.

If a Firm Is a Perfect Competitor in Its Product