According to the principle of marginal productivity, if
A) the product price is less than MRP, the firm is using too little of the input.
B) the price of an input rises, the quantity demanded of the input will increase.
C) MRP is greater than product price, the firm should reduce the use of the input.
D) price of the input equals MRP, the firm is maximizing profit.

Question

Quizplus · Accepted Answer

According to the principle of marginal productivity, a firm should hire an input until the MRP (marginal revenue product) of the input is equal to its price. This is because additional units of the input will add more revenue than cost, increasing the firm's profit. Therefore, when the price of the input equals MRP, the firm is maximizing its profit. Choices A and C suggest that the firm is not maximizing its profit, while choice B suggests an inverse relationship between price and quantity demanded, which is not correct according to the law of demand.

According to the Principle of Marginal Productivity, If