In theory, if a profit-maximizing firm in a perfectly competitive labor market found it advantageous to hire one less worker, the firm should pay a
A) lower wage rate but only to the most recently hired workers.
B) higher wage rate but only to the most recently hired workers.
C) lower wage rate to all previous workers hired.
D) higher wage rate to all previous workers hired.

Question

Quizplus · Accepted Answer

In a perfectly competitive labor market, the wage rate is determined by the market and is the same for all workers. If a firm decides to hire one less worker, it does not change the wage rate for the remaining workers. The premise of paying a different wage to the most recently hired or to any specific group of workers contradicts the assumption of a perfectly competitive labor market where each worker is paid the same wage rate. However, the correct answer is based on the theoretical scenario provided, which does not align with the typical characteristics of a perfectly competitive labor market. Therefore, the explanation is that in a perfectly competitive labor market, firms do not have the power to set wages; wages are determined by the market. The scenario described does not accurately reflect how wages are adjusted in such markets, making the explanation theoretical rather than practical.

In Theory, If a Profit-Maximizing Firm in a Perfectly Competitive