A profit-maximizing firm employs resources to the point where
A) MRC = MP.
B) resource price equals product price.
C) MRP = MRC.
D) MP = product price.

Question

Quizplus · Accepted Answer

MRP (marginal revenue product) represents the additional revenue a firm gets from employing an additional unit of resource, while MRC (marginal resource cost) is the cost of employing an additional unit of the resource. Therefore, a profit-maximizing firm should employ resources until the additional revenue generated from the last unit of resource (MRP) equals the cost of employing that unit (MRC). This is captured in choice C, where MRP = MRC.

A Profit-Maximizing Firm Employs Resources to the Point Where