A firm that is perfectly competitive will continue to hire factor units as long as

Question

Quizplus · Accepted Answer

In perfect competition, the firm is a price taker and therefore the marginal revenue (MR) is equal to the price of the product. The marginal factor cost (MFC) is the cost of hiring one more unit of a factor of production. The firm will continue to hire factor units as long as the marginal revenue product (MRP) from hiring an additional unit of the factor exceeds the MFC. This is because as long as the MRP is greater than the MFC, the firm can increase its profits by hiring more units of the factor. Therefore, the correct choice is B.

A Firm That Is Perfectly Competitive Will Continue to Hire