In a perfectly competitive labour market, each firm takes the wage rate as given. In the same way, a perfectly competitive firm in the market for goods takes which of the following as given?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The market price of the good
A firm in a perfectly competitive market is a price-taker. It believes it cannot change the market price, so it takes the price as given and decides only how much to sell. In the same way, one firm hiring labour cannot change the wage.
Its output, the workers it hires and so its costs are the firm’s own choices, made at that given price.
This question uses The Theory of the Firm under Perfect Competition and Market Equilibrium together.
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.” Introductory Microeconomics, Chapter 4 (The Theory of the Firm under Perfect Competition): “4.1 Perfect Competition: Defining Features … These features result in the single most distinguishing characteristic of perfect competition: price taking behaviour. … A price-taking firm believes that if it sets a price above the market price, it will be unable to sell any quantity of the good that it produces. On the other hand, should the set price be less than or equal to the market price, the firm can sell as many units of the good as it wants to sell.” |