A profit-maximizing firm will employ labor up to the point where the
A) MRP of labor = MRC of labor.
B) MP of labor = MRC of labor.
C) MC = MRP.
D) MP = MC.

Question

Quizplus · Accepted Answer

The MRP (Marginal Revenue Product) of labor represents the additional revenue generated by one more unit of labor, while the MRC (Marginal Resource Cost) of labor is the additional cost incurred by hiring one more unit of labor. Profit maximization occurs when the firm hires labor up to the point where the MRP of labor equals the MRC of labor, i.e. where the benefit of hiring another worker is equal to the cost of hiring that worker. This ensures that the firm maximizes its profits by allocating its resources (labor) efficiently.

A Profit-Maximizing Firm Will Employ Labor Up to the Point