For maximum profit, a firm hires labor up to the point at which the wage equals (i)
The value of the marginal product of labor.
(ii)
The marginal cost of an additional unit of output.
(iii)
Output price multiplied by the marginal product of labor.

Question

Quizplus · Accepted Answer

The firm's main goal is to maximize profit. To do this, they need to hire labor up to the point where the additional cost of hiring an extra worker (the wage) is equal to the additional revenue that worker generates (the marginal product of labor). This is represented by answer choice (i). However, answer choice (iii) is not correct because it multiplies the output price with the marginal product of labor, which does not take into account the additional cost of hiring a new worker. Therefore, the best choice is (i) and (ii) only, which ensures that the firm maximizes profit while minimizing their costs.

For Maximum Profit, a Firm Hires Labor Up to the Point