Use the following to answer question(s): Wage Determination in Perfect Competition

-(Exhibit: Wage Determination in Perfect Competition) Which of the following is true?
A) The firm will hire L₁ units of labor, as shown in Panel (a).
B) The labor market will hire l₁ units of labor, as shown in Panel (b).
C) The wage of labor is W₁.
D) The curve labeled s₁ in Panel (b) is the firm's demand curve for labor.

Question

Use the following to answer question(s): Wage Determination in Perfect Competition
 
-(Exhibit: Wage Determination in Perfect Competition) Which of the following is true?
A) The firm will hire L₁ units of labor, as shown in Panel (a). 
B) The labor market will hire l₁ units of labor, as shown in Panel (b). 
C) The wage of labor is W₁. 
D) The curve labeled s₁ in Panel (b) is the firm's demand curve for labor.

Quizplus · Accepted Answer

In a perfectly competitive labor market, the wage rate is determined at the intersection of the market supply and demand curves, which is shown as W₁ in Panel (b) of the exhibit. The firm will hire labor up to the point where the value of the marginal product of labor equals the wage rate, which is shown as L₁ in Panel (a). The curve labeled s₁ in Panel (b) is the market supply curve for labor, not the demand curve for labor. Therefore, options A, B, and D are incorrect.

Use the Following to Answer Question(s): Wage Determination in Perfect