A microeconomic analysis shows that in a competitive
Economy in which labor is homogenous and mobile, the
Ratio of the prices of the products in equilibrium is
Inversely proportional to:
A)the ratio of the capital used in production.
B)the ratio of the marginal products of labor.
C)the geographical region of the country in which the factory is located.
D)the strength of bargaining power of the workers.

Question

Quizplus · Accepted Answer

According to the question, labor is homogenous and mobile in a competitive economy. Therefore, the price of labor is equal across all firms. In such a scenario, the ratio of prices of products in equilibrium is inversely proportional to the ratio of the marginal products of labor. It means that if one product has a higher marginal product of labor compared to another product, its price will be lower in equilibrium. Hence, option B is the correct answer. Options A, C, and D are not relevant to the given scenario.

A Microeconomic Analysis Shows That in a Competitive