ECON-1203 Chapter : Handout 28
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If a firm is a factor price taker, it can buy all it wants of a factor at the equilibrium price. For example, suppose the equilibrium price for factor x is . If a firm is a factor price taker, it can buy any quantity of factor x at per factor unit (see exhibit 1a). The mfc curve plots quantities of the factor (column 1 in exhibit 1a) against marginal factor cost (column 4 in the exhibit). This gives us the horizontal mfc curve shown in exhibit 1b. The factor supply curve plots quantities of the factor (column 1 in exhibit 1a) against the price of the factor (column 2 in the exhibit). This also gives us the horizontal curve shown in exhibit 1b. So for a factor price taker, the mfc curve is the same as the supply curve for the factor.
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