Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:
A) be less than price times the marginal product of labor.
B) equal price times the marginal product of labor.
C) be greater than price times the marginal product of labor.
D) None of the above is necessarily correct.

Question

Quizplus · Accepted Answer

In a perfectly competitive labor market, firms hire workers until the wage equals the marginal revenue product of labor (MRP), which is the marginal product of labor times the marginal revenue (not price, since the output market is not perfectly competitive). Therefore, the wage will be less than price times the marginal product of labor.

Suppose the Labor Market Is Perfectly Competitive, but the Output