Firms in a competitive labor market will employ labor up to the point where

Question

Quizplus · Accepted Answer

In a competitive labor market, the wage rate is determined by the intersection of the supply and demand curves for labor. Firms will hire labor up to the point where the wage they have to pay equals the marginal revenue product (MRP) of labor, which is the additional revenue generated by hiring one more unit of labor. This is because, at this point, the cost of hiring one more unit of labor (the wage) is equal to the additional revenue generated by that unit of labor (MRP), and any further hiring would result in a decrease in profits. Therefore, choice C, which states that firms will employ labor up to the point where the wage equals the marginal revenue product, is the best choice.

Firms in a Competitive Labor Market Will Employ Labor Up