A profit-maximizing firm in a competitive market will employ more workers until the
A) marginal product equals the wage.
B) marginal product equals zero.
C) marginal revenue product equals zero.
D) marginal revenue product equals marginal cost.
E) value of the marginal product equals the wage.

Question

Quizplus · Accepted Answer

The correct answer is E because in a competitive market, a profit-maximizing firm will continue to employ more workers until the value of the marginal product (VMP) of labor equals the wage. The VMP is the additional revenue a firm earns from hiring one more worker, and equating it to the wage ensures that the cost of hiring the worker is just offset by the revenue they generate, maximizing profits.

A Profit-Maximizing Firm in a Competitive Market Will Employ More