If a firm is a price taker in both the labor market and the output market,it will
A) earn zero economic profit in the short run.
B) hire labor until the marginal product of labor equals zero.
C) hire labor until the marginal revenue product equals the output price.
D) hire labor until the marginal revenue product equals the wage rate.

Question

Quizplus · Accepted Answer

If the firm is a price taker in both the labor market and the output market, it will hire labor until the marginal revenue product (MRP) equals the wage rate because it cannot influence either market. The MRP is the additional revenue earned by the firm from hiring an additional unit of labor, and it will continue to hire labor as long as the MRP is greater than or equal to the wage rate.

If a Firm Is a Price Taker in Both the Labor