Let MP = marginal product of labor, P = output price, and W = wage, then the equation that represents a situation where a competitive firm should lay off some workers to maximize profits is A)P × MP = W. B)P × MP W. C)P × MP

Question

Let MP = marginal product of labor, P = output price, and W = wage, then the equation that represents a situation where a competitive firm should lay off some workers to maximize profits is
A)P × MP = W.
B)P × MP > W.
C)P × MP < W.
D)MP × W = P.

Quizplus · Accepted Answer

A competitive firm should lay off some workers to maximize profits when the wage cost of labor (W) is greater than the additional revenue generated by employing an extra worker, known as the marginal revenue product of labor (P x MP). This can be represented by the equation P x MP < W.

Let MP = Marginal Product of Labor, P = Output