Suppose a Firm Is Operating in a Competitive Product Market

question 167

Multiple Choice

Suppose a firm is operating in a competitive product market with competitive factor markets.Further, assume labour is the firm's only factor of production.Which of the following conditions will ensure the firm is maximising profit? (Let P be the price of the good, MPL the marginal product of labour, W the wage rate, and MR the marginal revenue of the good.)

• A)P = W
• B)P x MPL = W
• C)MPL = W
• D)MR = P x MPL

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Definitions:

Economic Value Added

A measure of a company's financial performance that shows the net profit after deducting the cost of capital.

Imputed Interest Rate

An estimated interest rate used in accounting when no explicit interest is specified in a financial transaction, helping to assign a fair value to future payments.

Residual Income

The income that remains after deducting all costs, including the cost of capital, from the revenues of a business, investment, or project.

Invested Capital

The total amount of money that has been invested into a company by its owners and creditors, often used in ROI calculations.