A perfectly competitive firm will continue to increase production until the marginal cost of the variable factor is
A) equal to the marginal revenue product of the factor.
B) equal to the marginal revenue of the firm's output.
C) less than the marginal revenue of the firm's output.
D) greater than the marginal revenue of the firm's output.
E) equal to zero.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms will continue to increase production until the marginal cost of the variable factor is equal to the marginal revenue product of the factor. This is because in a perfectly competitive market, the price of the output is equal to the marginal revenue, and the price of the variable factor (such as labor) is equal to the marginal cost. Therefore, the firm will hire more labor until the additional revenue generated by the last worker is equal to the additional cost of hiring that worker.

A Perfectly Competitive Firm Will Continue to Increase Production Until