A profit-maximizing firm will never hire that quantity of a factor of production for which that factor has an increasing marginal productivity because
A)it would not be maximizing output.
B)it would not be maximizing the productivity of labor.
C)it would not be minimizing costs.
D)it would not be maximizing profits.

Question

Quizplus · Accepted Answer

If a firm hires a quantity of a factor of production for which that factor has an increasing marginal productivity, it means that the additional output produced by each additional unit of the factor is increasing. The firm would continue to hire more of the factor until its marginal cost equals its marginal revenue product. Therefore, if the factor has an increasing marginal productivity, the firm has not yet reached the point of maximizing profits and should continue to hire more of the factor until it no longer has an increasing marginal productivity. Thus, the correct answer is D - it would not be maximizing profits.

A Profit-Maximizing Firm Will Never Hire That Quantity of a Factor