In the employment of any resource, a firm should

Question

Quizplus · Accepted Answer

A firm should aim to hire each input unit that adds more to revenue than it adds to costs, which is in line with option B. This ensures that the firm maximizes its profits. However, to make this decision, the firm needs to compare the marginal revenue product with the cost of the additional resource, as stated in option A. This comparison helps the firm know whether hiring an additional unit will increase profits or not. Therefore, both options A and B are correct, making option D the correct answer. Option C is incorrect because not all input units with a marginal physical product greater than zero will add more to revenue than they add to costs.

In the Employment of Any Resource, a Firm Should