To maximize profit, firms should hire workers up to the point where:

Question

Quizplus · Accepted Answer

To maximize profits, firms should continue hiring workers as long as the marginal product of labor (MPL) multiplied by the price of the output produced (P) is greater than or equal to the wage rate (W) paid to the workers. Stated algebraically, MPL x P ≥ W. This is because the firm will continue to generate more revenue from the additional output produced by the worker than it pays in wages. Once MPL x P < W, the firm is no longer generating enough revenue from the worker to justify the wage paid and should not hire additional workers. Therefore, choice C is correct as it reflects this optimal point.

To Maximize Profit, Firms Should Hire Workers Up to the Point