A microeconomic analysis shows that in a competitive economy in which labor is homogenous and mobile, the ratio of the prices of the products in equilibrium is inversely proportional to:
A) the ratio of the capital used in production.
B) the ratio of the marginal products of labor.
C) the geographical region of the country in which the factory is located.
D) the strength of bargaining power of the workers.

Question

Quizplus · Accepted Answer

The ratio of the prices of products in a competitive economy is determined by the ratio of marginal products of labor, which represents the contribution of labor to production. This is because in a competitive market, firms compete to hire labor until the marginal product of labor equals the wage. Therefore, the ratio of prices is inversely proportional to the ratio of marginal products of labor.

A Microeconomic Analysis Shows That in a Competitive Economy in Which