Even when competitive firms are unable to calculate marginal revenue product directly, _______ will push wage rates toward the marginal revenue product of labor.

Question

Even when competitive firms are unable to calculate marginal revenue product directly, _______  will push wage rates toward the marginal revenue product of labor.

Quizplus · Accepted Answer

The pressures of competition in the labor market ensure that wages adjust to match the marginal revenue product of labor. Firms that pay too much will have higher costs and lower profits, while firms that pay too little will lose workers to competitors, driving wages toward the equilibrium level where they equal the marginal revenue product of labor.

Even When Competitive Firms Are Unable to Calculate Marginal Revenue