If a firm is a competitor in its output market and a competitor in an input market, its input bundle will be chosen so that: A)VMP MRP for that input. C)VMP is not equal MRP for that input. D)VMP = MRP for that input.

Question

If a firm is a competitor in its output market and a competitor in an input market, its input bundle will be chosen so that:
A)VMP < MRP for that input.
B)VMP > MRP for that input.
C)VMP is not equal MRP for that input.
D)VMP = MRP for that input.

Quizplus · Accepted Answer

In a competitive market, both for its output and input, a firm will choose its input bundle such that the Value of Marginal Product (VMP) equals the Marginal Resource Cost (MRC), which is essentially the same as saying VMP = Marginal Revenue Product (MRP) for that input. This ensures the most efficient allocation of resources from the firm's perspective, maximizing profit.

If a Firm Is a Competitor in Its Output Market