Consider the following statements about a perfectly competitive firm hiring labour:
(A) The marginal revenue of the firm is equal to the price of the commodity.
(B) The marginal revenue product of labour of the firm is equal to its value of marginal product of labour.
(C) The value of marginal product of labour is the price of the commodity times the marginal product of labour.
(D) The marginal revenue product of labour is marginal revenue times the average product of labour.
(E) The value of marginal product of labour is the wage rate times the marginal product of labour.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (B) and (C) only
(A) The marginal revenue of the firm is equal to the price of the commodity. — Correct. A competitive firm sells every extra unit at the same market price, so MR equals the price.
(B) The marginal revenue product of labour of the firm is equal to its value of marginal product of labour. — Correct. MRPL = MR × MPL. Since MR equals the price here, MRPL = price × MPL = VMPL.
(C) The value of marginal product of labour is the price of the commodity times the marginal product of labour. — Correct. VMPL is the price times the marginal product of labour.
(D) The marginal revenue product of labour is marginal revenue times the average product of labour. — Incorrect. MRPL is MR times the marginal product of labour, the extra output of one more unit. The average product plays no part.
(E) The value of marginal product of labour is the wage rate times the marginal product of labour. — Incorrect. VMPL uses the price of the good. The wage is the cost of labour that the firm compares VMPL with.
NCERT (2026-27): “Wage Determination in Labour Market … The firm being a profit maximiser will always employ labour upto the point where the extra cost she incurs for employing the last unit of labour is equal to the additional benefit she earns from that unit. The extra cost of hiring one more unit of labour is the wage rate (w). The extra output produced by one more unit of labour is its marginal product (MPL) and by selling each extra unit of output, the additional earning of the firm is the marginal revenue (MR) she gets from that unit. Therefore, for each extra unit of labour, she gets an additional benefit equal to marginal revenue times marginal product which is called Marginal Revenue Product of Labour (MRPL). Thus, while hiring labour, the firm employs labour up to the point where w = MRPL and MRPL = MR × MPL” “Wage Determination in Labour Market … Since we are dealing with a perfectly competitive firm, marginal revenue is equal to the price of the commoditya and hence marginal revenue product of labour in this case is equal to the value of marginal product of labour (VMPL).” Glossary: “Value of marginal product (VMP) of a factor – Price times Marginal Product of the factor.” |