Question

The real wage implied by the price-setting behavior of firms having some market power is given by

A. 1/1−m
B. 1/1+m
C. 1+m

Answer 1

Option (A), The real wage implied by the price-setting behavior of firms with market power is 1/(1-m)

Step-by-step explanation:

The real wage implied by the price-setting behavior of firms with some market power is given by option A: 1/(1-m).

When firms have market power in their output market, they choose the number of workers based on the firm's marginal revenue product. Since the marginal revenue is less than the price, the demand for labor is lower compared to a perfectly competitive firm.

Therefore, the real wage is determined by dividing 1 by 1 minus the market power (m).