The firm will hire current labour until
A)the marginal product of labour is less than the real interest rate.
B)profits are maximized.
C)total factor productivity is maximized.
D)the marginal product of labour equals the wage rate.
E)the marginal product of labour equals total employment.

Question

Quizplus · Accepted Answer

The firm will hire current labour until the marginal product of labour equals the wage rate. This is because as long as the marginal product of labour is greater than the wage rate, hiring additional labour will increase the firm's profits. However, once the marginal product of labour falls below the wage rate, the cost of hiring additional labour exceeds the benefits, and hiring more workers would decrease the firm's profits. Therefore, the profit-maximizing level of labour employment occurs when the marginal product of labour equals the wage rate.

The Firm Will Hire Current Labour Until