In order to maximize its profits, a typical firm should follow the following formula:
A) P x L = W x Y
B) P x W = L x Y
C) P x MPL = W
D) P x Y = W x L

Question

Quizplus · Accepted Answer

The correct formula for a firm to maximize its profits is P x MPL = W, where P stands for the price of the product, MPL is the marginal product of labor, and W is the wage rate. This equation means that a firm maximizes profit when the value of the additional output produced by the last unit of labor (P x MPL) equals the wage rate.

In Order to Maximize Its Profits, a Typical Firm Should