Exhibit 10-5 A perfectly competitive labor market In Exhibit 10-5, when the marginal revenue product is $20.00, the firms should ____ workers.

Question

Exhibit 10-5  A perfectly competitive labor market  In Exhibit 10-5, when the marginal revenue product is $20.00, the firms should ____ workers.

Quizplus · Accepted Answer

When the marginal revenue product is $20.00, it means that the additional output produced by hiring one more worker is worth $20.00 to the firm. Since the firms in a perfectly competitive labor market are price takers and the wage rate is determined by the market, they will hire workers as long as their wage is less than or equal to their marginal revenue product. Therefore, they should continue hiring workers as long as their marginal revenue product is greater than or equal to the wage rate.

Exhibit 10-5 a Perfectly Competitive Labor Market in Exhibit 10-5