Suppose there are profit maximizing, competitive buyers and sellers of labor in an industry, and the amount of capital is fixed for each firm. Explain under what condition the output price will equal the wage rate
What will be an ideal response?
The profit-maximizing buyer of labor sets the output price equal to the marginal cost of producing an additional unit of output. The marginal cost of output when capital is fixed equals the wage rate divided by the marginal product of labor. If the marginal product of labor equals one, then the output price will equal the wage rate.
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