GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Average revenue product (ARP)
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Marginal revenue product (MRP)
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Both (a) and (b)
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Marginal physical product
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Detailed explanation-1: -The demand curve will shift downward and to the left so that the price of the factor will fall to a level at which price the firms earn only normal profits. Thus, in the long run, under perfect competition in the factor market, price of the factor is equal to both MRP and ARP of the factor.
Detailed explanation-2: -A perfectly competitive market achieves long‐run equilibrium when all firms are earning zero economic profits and when the number of firms in the market is not changing.
Detailed explanation-3: -Thus under perfect competition profit maximizing behavior implies that factors are paid a price equal to the value of the marginal product but under monopoly factors are paid a price equal to its marginal revenue product.