The rule that the marginal revenue product of each factor be equal to the price of the factor ensures that the firm will not only be using a least-cost combination of factors but also be operating at its maximum-profit position.

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The rule that the marginal revenue product of each factor should be equal to its price is the condition for profit maximization and least-cost combination of factors. This is because when a firm hires additional units of a factor, the marginal revenue product should be greater than or equal to its price to continue hiring. This ensures that the firm is getting the most value out of each factor and is using the least-cost combination of factors to produce its output. Therefore, by following this rule, the firm will operate at its maximum-profit position.

The Rule That the Marginal Revenue Product of Each Factor