Assume there is perfect competition in the product market. Given this information, we know that m (in the price setting equation P = (1 + m)W) equals:

Question

Quizplus · Accepted Answer

In perfect competition, there are many buyers and sellers, and no one firm has enough market power to influence the market price. Therefore, firms are price takers and can only sell their products at the prevailing market price. As a result, m (the markup over the firm's marginal cost) is zero because the firm has no control over the price. Thus, the price setting equation simplifies to P = W.

Assume There Is Perfect Competition in the Product Market