The marginal cost of a productive resource is equal to the price of the resource if a firm is:
A) a price taker in the output market.
B) a price taker in the resource market.
C) able to influence the price of the product by producing more or less of it.
D) able to influence the price of the factor by buying more or less of it.

Question

Quizplus · Accepted Answer

The marginal cost of a productive resource is equal to the price of the resource only if the firm is a price taker in the resource market. If the firm can influence the price of the resource by buying more or less of it, then the marginal cost will not be equal to the price of the resource. Similarly, if the firm can influence the price of the product by producing more or less of it, then the marginal cost will not be equal to the price of the resource. However, if the firm is a price taker in the resource market, then the price of the resource is given and the firm has to pay that price regardless of how much it produces. In that case, the marginal cost of the resource is equal to the price of the resource.

The Marginal Cost of a Productive Resource Is Equal to the Price