A firm is in equilibrium when the wage is:
A)less than the price of the product.
B)greater than the average product.
C)equal to the average product.
D)equal to the VMPL.

Question

Quizplus · Accepted Answer

The VMPL (value of the marginal product of labor) is the additional revenue a firm earns by hiring an additional worker. Therefore, at the equilibrium wage rate, the firm is earning the same amount of revenue as the cost of hiring the worker, which is equivalent to the VMPL. Therefore, the firm is in equilibrium when the wage is equal to the VMPL.

A Firm Is in Equilibrium When the Wage Is