If a firm is a perfectly competitive purchaser of factor inputs and the wage rate is $5, the marginal factor cost for labor is

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker and has no market power to influence the wage rate. Therefore, the wage rate of $5 is also the marginal factor cost for labor. Any increase in the wage rate would result in the firm reducing its labor demand, and any decrease in the wage rate would prompt the firm to increase its labor demand. Thus, the marginal factor cost remains constant at $5.

If a Firm Is a Perfectly Competitive Purchaser of Factor