A perfectly competitive profit-maximizing firm will pay its workers the MRP_labor.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price-taker and cannot influence the market price of its output. Therefore, the marginal revenue product of labor (MRPL) is equal to the wage rate (W) and the firm will hire labor up to the point where MRPL= W. This implies that the firm will pay its workers the MRPL which is equal to the value of the additional output produced by an extra unit of labor (MP) times the market price of the output (P): MRPL = MP x P.

A Perfectly Competitive Profit-Maximizing Firm Will Pay Its Workers the MRPlabor

A Perfectly Competitive Profit-Maximizing Firm Will Pay Its Workers the MRP_labor