Suppose there are profit maximizing, competitive buyers and sellers of labor in an industry, and the amount of capital is fixed for each firm. Explain under what condition the output price will equal the wage rate
What will be an ideal response?
The profit-maximizing buyer of labor sets the output price equal to the marginal cost of producing an additional unit of output. The marginal cost of output when capital is fixed equals the wage rate divided by the marginal product of labor. If the marginal product of labor equals one, then the output price will equal the wage rate.
You might also like to view...
Suppose that David buys the same number of energy drinks every weekend no matter what happens to the price of the energy drinks. What does this suggest about davids demand for energy drinks?
Which of the following industries is most likely to exhibit the characteristic of free entry?
a. nuclear power b. municipal water and sewer c. dairy farming d. airport security
Economic profits equal
A) accounting profits. B) accounting profits less economic rents. C) total revenue less the opportunity costs of all factors of production. D) accounting profits plus the owner's labor opportunity costs.
What conditions must be satisfied if resources are used efficiently?
What will be an ideal response?