A profit-maximizing firm should hire workers up to the point where labor's marginal revenue product equals the wage rate.

Question

Quizplus · Accepted Answer

This statement is true according to the theory of labor demand. A profit-maximizing firm will continue to hire additional workers as long as their marginal revenue product (the additional revenue generated by each additional worker) is greater than or equal to the cost of hiring that worker (the wage rate). Once the marginal revenue product falls below the wage rate, the firm will stop hiring additional workers. Therefore, the firm will hire workers up to the point where their marginal revenue product equals the wage rate.

A Profit-Maximizing Firm Should Hire Workers Up to the Point