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Chapter 14: Q. 14 (page 350)

What is a perfectly competitive labor market?

Short Answer

Expert verified

In a completely competitive labor market, businesses can hire as many people as they want at the going market wage.

Step by step solution

01

Definition

Perfectly competitive labor market:

Each firm is a wage taker in a completely competitive labor market, where the wage rate is set by the industry rather than by the individual firm.

02

Explanation

A perfectly competitive labour market is one in which businesses can hire as much workers as they want at market rates. Consider secretaries in a big metropolis. Employers who require secretaries will most likely be able to hire as many as they require if they pay the going salary rate. This means that the market will determine the true equilibrium pay, and the labor supply to each particular firm will be completely elastic at the market rate.

03

Conclusion

Therefore, this allows businesses to hire as many workers as they want at market rates.

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Most popular questions from this chapter

Will a free market tend to encourage or discourage discrimination? Explain briefly.

What is the marginal cost of labor?

Table 14.10 shows levels of employment (Labor), the marginal product at each of those levels, and the price at which the firm can sell output in the perfectly competitive market where it operates.

LaborMarginal product of LaborPrice of the product
110\(4
28\)4
37\(4
45\)4
53\(4
61\)4
  1. What is the value of the marginal product at each level of labor?
  2. If the firm operates in a perfectly competitive labor market where the going market wage is $12, what is the firm’s profit maximizing level of employment?

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