In a price-taker industry, the marginal revenue derived from the sale of an additional unit of the product is equal to the market price of the product. In these circumstances,
A) value of marginal product is less than marginal revenue product.
B) value of marginal product is greater than marginal revenue product.
C) value of marginal product equals marginal revenue product.
D) marginal product equals marginal cost.

Question

Quizplus · Accepted Answer

In a price-taker industry, the firm cannot affect the market price, meaning that the marginal revenue it derives from selling an additional unit is equal to the market price. Therefore, the value of marginal product (the additional revenue earned by hiring one more unit of input) is equal to the marginal revenue product (the additional revenue earned by selling one more unit of output), making C the correct choice. Option A is incorrect because the value of marginal product is not relevant in a price-taking situation. Option B and D are incorrect as they do not accurately describe the relationship between marginal revenue and marginal product in a price-taking environment.

In a Price-Taker Industry, the Marginal Revenue Derived from the Sale