Question

A pretzel-stand owner in Chicago hires workers to make hot pretzels and sell them to customers. If the firm is competitive in both the market for pretzels and in the market for pretzel-makers, then it hasA. no control over the price of pretzels but some control over the wage it pays to its workers.B. some control over both the price of pretzels and the wage it pays to its workers.C. some control over the price of pretzels but no control over the wage it pays to its workers.D. no control over either the price of pretzels or the wage it pays to its workers.

Answer 1

Answer:

D. no control over either the price of pretzels or the wage it pays to its workers.

Explanation:

A competitive market is characterised by many firms that are price takers. Firms that are price takers have no influence over the price they charge for their products; prices are set by the forces of demand and supply.

If the market for pretzels are competitive, the firm cannot set the price for pretzels. If the pretzel stand owner increases the price for pretzels, consumers patronize other pretzel stand owners. There would be no incentive for the pretzel owner to reduce its cost because the pretzel stand owner would be reducing its revenue and reducing its profit

If the market for pretzel makers is competitive, firms have no influence on wages that can be paid to workers.Wages are determined by the forces of demand and supply. If wages are cut, workers move to other firms. There would be no incentive to increase wages because it would increase cost and reduce profit.