In equilibrium, when a competitive firm hires labour up to the point at which the value of the marginal product of labour equals the wage, it also produces up to the point at which the price equals marginal cost.

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Quizplus · Accepted Answer

This statement is true based on the concepts of profit maximization and perfect competition. The firm hires labor up to the point where the value of the marginal product of labor (the additional output gained from hiring one more unit of labor) equals the wage, in order to maximize profits. Similarly, the firm produces up to the point where price equals marginal cost (the additional cost of producing one more unit of output), in order to maximize profits. In equilibrium, these two conditions are satisfied simultaneously.

In Equilibrium, When a Competitive Firm Hires Labour Up to the Point