Consider two situations: In situation A the production of widgets is monopolized by a single firm.In situation B the production of widgets is perfectly competitive.In both situations the supply of labor to widget makers is infinitely elastic at a wage of w.Which of the following statements is true?
A)The marginal value product of labor will be the same in the two cases.
B)The marginal value product of labor is higher in case B than in case A.
C)The marginal value product of labor is higher in case A than in case B.
D)From the information given it is not possible to make a definite statement about the marginal value product of labor.

Question

Quizplus · Accepted Answer

In a monopolized market (case A), the firm has market power and can set prices above marginal cost, leading to a higher marginal value product of labor compared to a perfectly competitive market (case B) where firms are price takers and sell at the market price, which equals marginal cost.

Consider Two Situations: in Situation a the Production of Widgets