In a perfectly competitive labor market, a profit-maximizing firm will hire labor up to the point at which the A)wage rate = MRC B)wage rate MRP E)wage rate = MP

Question

In a perfectly competitive labor market, a profit-maximizing firm will hire labor up to the point at which the
A)wage rate = MRC
B)wage rate < MRP
C)wage rate = MRP
D)wage rate > MRP
E)wage rate = MP

Quizplus · Accepted Answer

In a perfectly competitive labor market, firms are price takers and the labor supply curve is perfectly elastic. This means that the wage rate is equal to the marginal cost of labor (MCL) and also equal to the marginal product of labor (MPL). Therefore, a profit-maximizing firm will hire labor up to the point at which the wage rate is equal to the marginal revenue product of labor (MRP), the additional revenue generated by hiring an additional unit of labor. In other words, the firm will hire workers up to the point where the MRP equals the wage rate, which is at the point where the firm is no longer able to increase profits by hiring additional workers. Thus, the correct answer is C, "wage rate = MRP."

In a Perfectly Competitive Labor Market, a Profit-Maximizing Firm Will