In general, a firm hires the quantity of a factor of production up to the point at which marginal factor cost equals marginal revenue product.

Question

Quizplus · Accepted Answer

This is known as the profit-maximizing rule for hiring factors of production. When marginal factor cost (the additional cost of hiring another unit of a factor) is equal to marginal revenue product (the additional revenue generated by hiring another unit of a factor), a firm reaches the point where it is producing output at the lowest possible cost and the highest possible profit.

In General, a Firm Hires the Quantity of a Factor