A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm:
A) can increase profit by reducing the employment of the factor of production.
B) is now maximizing profit.
C) should not use this factor of production because it has no potential in generating a profit.
D) can increase profit by expanding the employment of the factor of production.

Question

Quizplus · Accepted Answer

Since the MRP (Marginal Revenue Product) is greater than the marginal expenditure for the factor, this implies that the firm is still gaining additional revenue by using more of the factor of production. Therefore, the firm can increase its profit by expanding the employment of the factor of production.

A Firm Purchases a Factor of Production in a Competitive