The profit-maximizing condition for a firm selling its output in a competitive market and buying its resources in a competitive market is
A) P = MC only.
B) MRP = wage only.
C) Both A and B.
D) Neither A nor B.

Question

Quizplus · Accepted Answer

For a firm to maximize profit in a competitive market, it needs to produce where marginal revenue (MR) equals marginal cost (MC) (condition A). It also needs to hire labor up to the point where the marginal revenue product (MRP) of labor equals the wage rate (condition B). Hence, the profit-maximizing condition for such a firm is both A and B, meaning P = MC and MRP = wage.

The Profit-Maximizing Condition for a Firm Selling Its Output in a Competitive