The marginal factor cost curve reflects the degree of market control held by a firm. For a perfectly competitive firm with no market control, the marginal factor cost curve is a horizontal line. For firms with more market control, especially monopsony, the marginal factor cost curve is positively sloped and lies above the average factor cost curve.

Marginal Factor Cost Curve, Perfect Competition

Marginal factor cost is commonly represented by a marginal factor cost curve, such as the one labeled MFC and displayed in the exhibit to the right. This particular marginal factor cost curve is that for labor hired by Maggie's Macrame Shoppe. Maggie's Macrame Shoppe is one of thousands of small retail stores in the greater Shady Valley metropolitan area that hires labor with identical skills. As such, Maggie pays the going wage for labor.

The vertical axis measures marginal factor cost and the horizontal axis measures the quantity of input (workers). Although quantity on this particular graph stops at 10 workers, the nature of perfect competition indicates it could easily go higher.

First and foremost, the marginal factor cost curve is horizontal at the going factor price of $10. This indicates that if Maggie hires the first worker, then her total factor cost increases by $10. Alternatively, if she hires the tenth worker, then her total factor cost increases by $10. Should she hire a hundredth worker, then she might move well beyond the graph, but her total factor cost increases by $10.