To study the demand for labour by a single firm, the labour market is assumed to be perfectly competitive. This implies that each firm:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → takes the wage rate as given
In a perfectly competitive labour market, one firm is too small to change the wage. It takes the wage rate as given and decides only how much labour to hire.
It hires labour up to the point where the wage equals the marginal revenue product of labour, not the average product.
NCERT (2026-27): “Wage Determination in Labour Market … To examine the demand for labour by a single firm, we assume that the labour is the only variable factor of production and the labour market is perfectly competitive, which in turn, implies that each firm takes wage rate as given. Also, the firm we are concerned with, is perfectly competitive in nature and carries out production with the goal of profit maximisation. We also assume that given the technology of the firm, the law of diminishing marginal product holds.” |