A profit-maximizing firm should hire an input as long as the
A) firm can increase its total revenue.
B) price of the input doesn't exceed the price of the other inputs used in the firm's production.
C) marginal revenue product of the input is at least as much as the cost of hiring the input.
D) marginal revenue product of the input is greater than the marginal revenue product of other inputs the firm is using.

Question

Quizplus · Accepted Answer

The marginal revenue product (MRP) is the additional revenue earned by the firm from hiring one additional unit of an input. The cost of hiring an input is the wage or price paid for that input. A profit-maximizing firm should hire an input as long as the MRP of the input is at least as much as the cost of hiring the input. This means that the firm is earning more revenue from using the input than it is paying for it. Therefore, choice C is the correct answer. Choice A is not sufficient because the firm may not necessarily increase its total revenue by hiring an input. Choice B is incorrect because the price of an input alone does not determine whether the firm should hire it or not. Choice D is incorrect because the MRP of an input must be compared to its hiring cost, not the MRP of other inputs.

A Profit-Maximizing Firm Should Hire an Input as Long as the