A firm that is perfectly competitve will continue to hire factor units as long as:
a. MRP < MFC
b. MRP > MFC
c. VMP < MFC
d. MC > MR
To determine the correct answer, let's break down the terms and concepts in the question.
A perfectly competitive firm is a type of market structure where many small firms produce identical goods or services. In this type of competitive market, firms are price takers, meaning they cannot influence the market price and must accept it as given.
Factor units refer to the inputs or resources used in the production process, such as labor or capital. The firm will hire factor units as long as doing so is economically justified.
Now, let's look at the answer choices:
a. MRP < MFC (Marginal Revenue Product < Marginal Factor Cost):
The marginal revenue product (MRP) represents the additional revenue a firm earns from hiring an additional factor unit, while the marginal factor cost (MFC) represents the additional cost of employing that factor unit. In a perfectly competitive market, a firm will continue to hire factor units as long as the additional revenue generated by hiring an extra unit (MRP) is greater than or equal to the additional cost incurred (MFC). Therefore, if MRP is less than MFC, the firm would not hire additional factor units. This option is incorrect.
b. MRP > MFC (Marginal Revenue Product > Marginal Factor Cost):
This option is the correct answer. As explained above, a perfectly competitive firm will continue to hire factor units as long as MRP is greater than or equal to MFC.
c. VMP < MFC (Value of Marginal Product < Marginal Factor Cost):
The value of the marginal product (VMP) represents the additional value or benefit a firm receives from hiring an additional factor unit, similar to the MRP. However, this term is not commonly used in the context of perfectly competitive firms. This option is incorrect.
d. MC > MR (Marginal Cost > Marginal Revenue):
This option is unrelated to hiring factor units in a perfectly competitive firm. It refers to the decision of how much output to produce based on the comparison of marginal cost (MC) and marginal revenue (MR). This option is incorrect.
In conclusion, the correct answer is b. MRP > MFC.