Let MP = marginal product, P = output price, and W = wage, then the equation that represents a situation where a competitive firm should lay off some workers to maximise profits is A)P × MP = W. B)P × MP W. C)P × MP

Question

Let MP = marginal product, P = output price, and W = wage, then the equation that represents a situation where a competitive firm should lay off some workers to maximise profits is
A)P × MP = W.
B)P × MP > W.
C)P × MP < W.
D)MP × W = P.

Quizplus · Accepted Answer

When a competitive firm is seeking to maximize profits, it should continue to hire workers until the marginal revenue product (MP) of labor is equal to the wage rate (W). This is because at that point, the firm is paying its workers the value of their contribution to the production process, and any additional worker hired beyond that point would not be economically efficient for the firm. 
Thus, the equation that represents a situation where a competitive firm should lay off some workers to maximize profits would be P × MP < W, as this indicates that the wage paid to the workers is greater than the value they produce, and continuing to employ them would result in reduced profits for the firm.

Let MP = Marginal Product, P = Output Price, and W