The profit-maximizing rule for a competitive firm is to hire labor until ________.

Question

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The profit-maximizing rule for a competitive firm is to hire labor until the value of the marginal product of labor equals the wage. This is because hiring workers adds to the total output of the firm and increases the revenue, but also incurs a cost, which is the wage paid to the workers. Therefore, the firm will continue to hire workers as long as the value of the additional output produced by each worker (the marginal product of labor) is greater than the cost of hiring that worker (the wage). At the point where these two values are equal, further hiring would not increase profits, and the firm will stop hiring additional workers.

The Profit-Maximizing Rule for a Competitive Firm Is to Hire