Consider the table below, which gives information on how much a firm can produce
ID: 1255140 • Letter: C
Question
Consider the table below, which gives information on how much a firm can produce at various levels of employment of labor. The table also gives information on demand for the firm's product. This firm can hire workers at $22 each.
For TR and MRP, I got:
Total revenue: 0, 36, 66, 90, 108, 120, 126
Marginal Revenue Product: 0, 36, 33, 24, 18, 12, 6
Answer this question:
Is this firm perfectly or imperfectly competitive in its product market? How do you know? Is this firm perfectly or imperfectly competitive in this resource market? How do you know?
Explanation / Answer
1. MRP should remain fairly constant for perfect competition Under perfect competition, marginal revenue product is equal to marginal physical product (extra unit produced as a result of a new employment) multiplied by price. MRP = MP x P This is because the firm in perfect competition is a price taker. It does not have to lower the price in order to sell additional units of the good. 2. MRP will decrease in case of imperfect competition The MRP curve of a firm in monopoly or imperfect competition will slope downwards at a faster rate than in perfect competition. Here it is Imperfect competition... http://en.wikipedia.org/wiki/Marginal_revenue_product#Marginal_Revenue_Product_in_a_perfectly_competitive_market