The following table shows total output produced by different units of capital.Table 14.3
The marginal revenue product of a resource is the product of the marginal product of the resource and the marginal revenue.
-A perfectly competitive employer of an input will maximize profits from the employment of the input by equating:
A)the value of the marginal product of the input with the price of the output.
B)the marginal product of the last unit of the input employed with the input price.
C)the input price with the price of the product produced.
D)the marginal revenue product of the input with the input price.
E)the marginal product of the last unit of the input employed with the price of the product produced.

Question

The following table shows total output produced by different units of capital.Table 14.3
The marginal revenue product of a resource is the product of the marginal product of the resource and the marginal revenue. 
-A perfectly competitive employer of an input will maximize profits from the employment of the input by equating:
A)the value of the marginal product of the input with the price of the output. 
B)the marginal product of the last unit of the input employed with the input price. 
C)the input price with the price of the product produced. 
D)the marginal revenue product of the input with the input price. 
E)the marginal product of the last unit of the input employed with the price of the product produced.

Quizplus · Accepted Answer

In a perfectly competitive market, a firm can hire as much of the input as they want at the going market price. Therefore, the firm will continue to hire more of the input until the marginal revenue product (MRP) of the input equals the input price. This is because each additional unit of the input hired will add to the total revenue of the firm as long as the MRP is greater than the input price. However, if the MRP is less than the input price, the firm will lose money hiring the input. Therefore, to maximize profits, the firm should hire the input up to the point where MRP equals the input price (option D).

The Following Table Shows Total Output Produced by Different Units