A firm faces competitive markets for its inputs and its output.Its marginal revenue product of labor
A) is increasing in the output price.
B) is decreasing in the output price.
C) is independent of the output price.
D) has an inverted U-shape.

Question

Quizplus · Accepted Answer

If the firm faces competitive markets for both its inputs and outputs, then the wage rate it pays for labor will be determined by the labor market, and its output price will be determined by the product market. Therefore, if the price of the firm's output increases, its marginal revenue product of labor (MRPL) will also increase. This is because the firm can sell more output at a higher price, which creates a greater demand for labor and increases the value of each additional unit of labor. Thus, MRPL is increasing in the output price.

A Firm Faces Competitive Markets for Its Inputs and Its