A profit-maximizing perfectly competitive firm should hire workers up to the point where labor's marginal revenue product equals the wage rate.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price-taker, and the marginal revenue product (MRP) of labor is equal to the marginal product of labor times the market price for the firm's output. The profit-maximizing firm will hire workers up to the point where the additional revenue from an extra unit of labor (MRP) is equal to the cost of hiring that worker, which is the wage rate in this case. Therefore, the firm should hire workers up to the point where MRP equals the wage rate.

A Profit-Maximizing Perfectly Competitive Firm Should Hire Workers Up to the Point