To maximize profits,a firm will employ workers until for the last worker employed:
A) marginal product of labour is equal to the nominal wage rate.
B) the value of the marginal product of labour is equal to the wage rate.
C) the value of the marginal product of labour is equal to the price per unit of output.
D) the value of the marginal product of labour is as high as possible.

Question

Quizplus · Accepted Answer

Maximizing profits requires that the firm should keep employing additional workers until the value of the marginal product of labour is equal to the wage rate. This is because if the marginal product of labour is greater than the wage rate, hiring an additional worker will increase the firm's revenue (assuming that the price of the output remains constant), thus increasing profits. On the other hand, if the marginal product of labour is less than the wage rate, hiring another worker will decrease the firm's profits since the cost of hiring the worker is greater than the revenue generated. Therefore, the firm will stop hiring additional workers at the point where the value of the marginal product of labour is equal to the wage rate.

To Maximize Profits,a Firm Will Employ Workers Until for the Last