Assuming pure competition, which of the following are equivalents?
A) $\mathrm { MRP } L _ { 1 } / P _ { L } = \mathrm { MRP } _ { C } / P _ { C } \text { and } P _ { x } = 1 / \mathrm { MC }$
B) $\mathrm { MRP } _ { L }/ P _ { L } = \mathrm { MRP } C / P C \text { and } P _ { x } = \mathrm { AVC }$
C) $P _ { X } = \mathrm { MC } \text { and } \mathrm { MRP } _ { L } / P _ { L } = \mathrm { MRP } C / P C = 1$
D) $P _ { x } = \mathrm { MC } \text { and } \mathrm { MP } _ { L } / P _ { L } = M P _ { C } / P _ { C}$

Question

Quizplus · Accepted Answer

In pure competition, the market price is determined by the intersection of demand and supply at the point where demand equals marginal cost (P = MC). Therefore, option C which states that the price of the product is equal to its marginal cost (P_x = MC) is correct. 
Moreover, in pure competition, all factors of production are paid according to their marginal revenue product (MRP) which is the additional revenue generated by the last unit of the factor. In equilibrium, the MRP of labor (MRP_L) divided by the price of labor (P_L) is equal to the MRP of capital (MRP_C) divided by the price of capital (P_C). Hence, option C is correct because it satisfies both conditions: P_x = MC and MRP_L/P_L = MRP_C/P_C = 1. The other options either include an incorrect statement or do not satisfy both conditions.

Assuming Pure Competition, Which of the Following Are Equivalents? A) MRPL1/PL=MRPC/PC and Px=1/MC\mathrm { MRP } L _ { 1 } / P _ { L } = \mathrm { MRP } _ { C } / P _ { C } \text { and } P _ { x } = 1 / \mathrm { MC }MRPL1​/PL​=MRPC​/PC​ and Px​=1/MC

Assuming Pure Competition, Which of the Following Are Equivalents?
A) $\mathrm { MRP } L _ { 1 } / P _ { L } = \mathrm { MRP } _ { C } / P _ { C } \text { and } P _ { x } = 1 / \mathrm { MC }$