Question

assume that a firm producing baseballs in Costa Rica is able to hire as many workers as it wishes at the local wage rate of 100 pesos per day – and that each baseball sells for ten pesos.

Which of these statements is correct?

a. The output market (-the market for these baseballs-) may be an example of perfect competition (since the firm is able to sell each unit of output for 10 pesos).

b. The input market (-the market for this type of labor-) may be an example of perfect competition (since marginal cost of the factor [MCF] is a constant amount).

c. Both of the above statements are correct.

d. None of the above statements is correct.

Answer 1

Answer - C. Both of the above answers are correct.

Reason - 1) It is a characteristic of a perfectly competitive market that a at market price it can buy as much quantity of input the firm wants.

  Hence, option B is correct because the firm is able to get as much workers as firm wants at 100 pesos per day.

2) Also, in perfectly market firm has to sell their product at market price. They can sell any quantity at such market price. That selling output is only controlling factor for firms.

Hence , in given case firm can sell any quantity of baseballs at 10 pesos. That is they cannot determine the selling price and has to produced and sell more than before to increase profits. Therefore option A is also correct.

3) since option A and B both are correct therefore option C is correct answer being A and B both of the above satements are correct.