Below is a graphical illustration of Nearly Done Inc.'s marginal revenue product.The firm employs its labour in a perfectly competitive labour market.

-Which of the following statements is true if a firm is hiring labour under conditions of a perfectly competitive factor market?
A)The firm's labour demand curve will be perfectly elastic.
B)The firm's labour supply curve will be upward-sloping.
C)The firm's labour supply curve will be perfectly elastic.
D)The firm's labour demand curve will be upward-sloping.

Question

Below is a graphical illustration of Nearly Done Inc.'s marginal revenue product.The firm employs its labour in a perfectly competitive labour market.
 
-Which of the following statements is true if a firm is hiring labour under conditions of a perfectly competitive factor market?
A)The firm's labour demand curve will be perfectly elastic. 
B)The firm's labour supply curve will be upward-sloping. 
C)The firm's labour supply curve will be perfectly elastic. 
D)The firm's labour demand curve will be upward-sloping.

Quizplus · Accepted Answer

In a perfectly competitive factor market, a firm is a wage taker, meaning it faces a perfectly elastic labour supply curve at the market-determined wage rate. This implies that the firm can hire as many workers as it wants at the prevailing wage without affecting the wage rate.

Below Is a Graphical Illustration of Nearly Done Inc