1. (points) A purely competitive firm is considered a \"price taker,\" and a mon
ID: 1126897 • Letter: 1
Question
1. (points) A purely competitive firm is considered a "price taker," and a monopsonist is considered a "price maker." Explain the above statement. What is there about the above statement that leads to the conclusion that the wage is equal to the marginal labor cost in a purely competitive firm and the marginal labor cost is higher than the wage in a monopsonist situation? Given the fact stated in (b) above, would wages be higher or lower in a purely competitive firm a. b. c. than in one controlled by a monopsonist? ( a yes or a no will suffice) d. Finally-what would be the point where the purely competitive firm and maximized profits?Explanation / Answer
Answer a : The above statement shows that in the perfect competition the firm is price taker because at this stage all firms are easy to enter in the market easily and produce a product that is not different from competitors in the market scanerio and the firm adopts the price from the market where as firm is price maker where its determines price according to the demand of the product in the market and charges maximum price according to supply.
Answer b : In the perfect competition the labour should be hired till the marginal product of labour is equal to marginal revenue product of the labour because in the perfect competition it is price taker. It does not increasethe price of the labour so the reason that marginal product is always equal to marginal revenue in the perfect competition market.
MRP= MPP*P
In monopoly, they would have lower the output price in the market. Under this market condition
MRP is not equal toMPP*P
Answer c : Wages would be higher in perfect competition as compare to monopoly business because when there is perfect competition MRP =MPP*P. But in perfect competition there are various firms available in the market so demand for labour is more and they are given more wages as compares to wages offered by monopoly business. Answer : It is condition where MR =MC it means here the firm earns maximum profit wheather it is perfect competition or monopoly.
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