Let MP = marginal product of labor, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is A)P × MP = W. B)P × MP W. D)P × W MP.

Question

Let MP = marginal product of labor, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is
A)P × MP = W.
B)P × MP < W.
C)P × MP > W.
D)P × W > MP.

Quizplus · Accepted Answer

A competitive firm will hire another worker as long as the additional output (marginal product of labor) that the worker produces is greater than the cost of hiring the worker (the wage). This can be represented by the equation P × MP > W, where the left-hand side is the additional revenue generated by hiring the worker (P × MP) and the right-hand side is the cost of hiring the worker (W). Therefore, the correct answer is C, P × MP > W.

Let MP = Marginal Product of Labor, P = Output