In pure competition,a profit-maximizing firm will equate the marginal revenue product of labor with the:

Question

Quizplus · Accepted Answer

In pure competition, the firm is a price taker, which means it cannot influence the market price of the product it sells. Therefore, the marginal revenue product of labor (MRP) is equal to the price of the product (P), as each additional worker will add a certain amount to the firm's output, and the firm can sell that output at the market price.

In other words, MRP = P x MPL (where MPL is the marginal product of labor), and since P is constant in pure competition, the firm will hire labor up to the point where the MRP equals the wage rate (or the cost of hiring one extra worker). This is the point where the firm maximizes its profits, as it cannot increase its revenue by hiring more workers due to the constant market price. Therefore, the best choice is A, as in pure competition, the firm will equate the MRP of labor with the wage rate.

In Pure Competition,a Profit-Maximizing Firm Will Equate the Marginal Revenue