A profit-maximizing firm should continue to hire workers until the MRP has declined to the level of the market wage rate in a competitive labor market.

Question

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A profit-maximizing firm should continue to hire workers until the marginal revenue product (MRP), or the additional revenue generated by each additional worker, has declined to the level of the market wage rate in a competitive labor market. This is because hiring additional workers beyond this point would cost the firm more than they are worth in terms of generating additional revenue. Therefore, in a competitive labor market, a firm would hire workers until MRP = wage rate to maximize their profits.

A Profit-Maximizing Firm Should Continue to Hire Workers Until the MRP