IF THE PRICE OF A FACTOR IS CONSTANT AT $48, HOW MANY UNITS OF THE FACTOR WILL THE FIRM BUY?THIS IS IN FACTOR MARKETS.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The first thing to understand here is that the price of this factor is going to be the supply curve of the graph that will show us the quantity that the firm will buy.  Because the price is constant, the supply curve will be a horizontal line at $48.

In order to know the equilibrium quantity bought, we of course have to know where the demand curve intersects with the supply curve.

In a factor market, the demand curve for a firm is equal to its marginal revenue product curve.  Therefore, the firm will buy at the point where MRP=Price of factor.  In this case, the firm will buy however many units of the factor will give it an MRP of $48.

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