A firm in a perfectly competitive goods and labor market hires an additional worker, which leads to a three-unit increase in output. If the competitive wage is $15, then the price of the good that the firm sells should be at least _____ for the firm to hire the worker.

Question

Quizplus · Accepted Answer

The firm should hire the worker if the marginal revenue product (MRP) of labor is at least equal to the wage. MRP is calculated as the marginal product of labor (3 units) multiplied by the price of the good. To cover the $15 wage, the price must be at least $5 ($15/3 units).

A Firm in a Perfectly Competitive Goods and Labor Market