For a competitive firm to maximize profits, it must hire labor up to the point at which marginal revenue product is equal to the wage rate.

Question

Quizplus · Accepted Answer

This statement is true. A firm's profit is maximized when it hires labor up to the point where the marginal revenue product (MRP) of labor equals the wage rate. This is because at this point, the firm is paying exactly what the labor is worth in terms of its contribution to the production process. Any additional unit of labor hired beyond this point would have an MRP less than the wage rate, resulting in a decrease in the firm's profit.

For a Competitive Firm to Maximize Profits, It Must Hire