When the competitive firm's value of the marginal product of labor intersects the market-wage level,the firm:
A) can increase its profits by hiring any amount less than this point.
B) can increase its profits by hiring any amount greater than that point.
C) should consider shutting down since it is not earning profits.
D) has found the profit-maximizing quantity of labor to hire.

Question

Quizplus · Accepted Answer

The value of the marginal product of labor (VMPL) is equal to the marginal revenue product of labor (MRPL) for the competitive firm. At the point where the VMPL intersects the market-wage level, the firm has found the point where hiring one more unit of labor would increase costs by the wage paid, but would not increase revenue by an equivalent amount. This would lead to a decrease in profits. Thus, the profit-maximizing quantity of labor to hire is the one where VMPL equals the wage level. Therefore, option D is correct.

When the Competitive Firm's Value of the Marginal Product of Labor