Profit-maximising competitive firms hire labour until marginal cost rises to equal:

Question

Quizplus · Accepted Answer

Profit-maximizing competitive firms hire labor until the marginal cost of hiring an additional unit of labor (which is the wage rate in a competitive labor market) equals the marginal revenue product of labor. The marginal revenue product of labor is the additional revenue a firm earns from hiring one more unit of labor, which is equal to the marginal product of labor (the additional output from hiring one more unit of labor) times the price of the output. Therefore, the correct answer is that firms hire labor until the marginal cost rises to equal the price of the output, as this ensures that the cost of hiring an additional unit of labor is justified by the revenue it generates.

Profit-Maximising Competitive Firms Hire Labour Until Marginal Cost Rises to Equal