In long- run equilibrium, for a firm which is a perfect competitor in its input and its output markets:
A)w = MRP = VMP for all inputs.
B)MP/p is identical for all inputs.
C)w = MRP

Question

In long- run equilibrium, for a firm which is a perfect competitor in its input and its output markets:
A)w = MRP = VMP for all inputs.
B)MP/p is identical for all inputs.
C)w = MRP < VMP.
D)VMP is identical for all inputs.

Quizplus · Accepted Answer

In long-run equilibrium, a firm which is a perfect competitor in its input and output markets will hire inputs up to the point where the marginal revenue product (MRP) equals the price of the input (w). This is because in a perfectly competitive market, the firm is a price taker and cannot influence the price of either the input or the output. Therefore, the firm's optimal input usage is determined solely by the relation between the input price and its MRP. Since the firm is maximizing profits, it will hire inputs up to the point where the MRP equals the input price, which in the long run will also be equal to the value of the marginal product (VMP). Therefore, w = MRP = VMP for all inputs in long-run equilibrium.

In Long- Run Equilibrium, for a Firm Which Is a Perfect