If factor markets are competitive, a profit maximizing firm should buy inputs where MRP is
A)inelastic.
B)elastic.
C)equal to the output price.
D)equal to the input price.

Question

Quizplus · Accepted Answer

A profit maximizing firm should buy inputs where MRP is equal to the input price. This is because at this point, the marginal cost of the input is equal to the marginal revenue product, ensuring that the firm is maximizing its profits. If the MRP were inelastic, the firm could potentially increase profits by buying more of the input, and if the MRP were elastic, the cost of the input would exceed the revenue generated from using it.

If Factor Markets Are Competitive, a Profit Maximizing Firm Should