Firms buying factors of production in perfectly competitive factor markets:

Question

Quizplus · Accepted Answer

Firms buying factors of production in perfectly competitive factor markets accept the market price of factors as given. They do not have the ability to set prices in factor markets as they can in product markets. Therefore, option A and C are incorrect. Option D is also incorrect as the demand curve for factors in a perfectly competitive market is horizontal, reflecting the fact that each firm faces a perfectly elastic supply curve for factors.

Firms Buying Factors of Production in Perfectly Competitive Factor Markets