A profit-maximizing firm hires labor until
A)the price of output equals the price of labor.
B)the price of output equals the marginal product of labor
C)the real wage equals the marginal product of labor.
D)the real wage equals the marginal product of labor multiplied by the price of output.

Question

Quizplus · Accepted Answer

A profit-maximizing firm wants to hire labor up to the point where the cost of hiring one more worker is equal to the additional output that the worker produces, which is represented by the marginal product of labor. However, since the price of output may not necessarily be equal to the marginal product of labor, the firm will hire labor up to the point where the real wage (the wage adjusted for inflation) is equal to the marginal product of labor, which is the additional output produced by one more worker. This is because the firm will only hire workers if the additional output they produce is worth at least as much as their wage.

A Profit-Maximizing Firm Hires Labor Until