For a profit-maximizing firm that is a price taker in the output market and a wage taker in the labor market,which of the following will be true?
A)The marginal revenue product will be higher than the marginal value product.
B)The marginal cost of labor must be lesser than the price of output.
C)The marginal value product of labor will equal the wage rate.
D)The marginal revenue from an extra unit sold will be higher than price.

Question

Quizplus · Accepted Answer

As a price taker in the output market, the firm cannot individually affect the price of its product, and thus its marginal revenue will equal the price of its product. As a wage taker in the labor market, the firm cannot individually affect the wage rate, and thus its marginal cost of labor will equal the wage rate. In order to maximize profits, the firm will hire labor up to the point where the marginal value product of labor equals the wage rate. Therefore, (C) is true, while (A), (B), and (D) are false.

For a Profit-Maximizing Firm That Is a Price Taker in the Output