Profit maximization requires that

Question

Quizplus · Accepted Answer

Profit maximization occurs at the point where marginal revenue product equals marginal factor cost for every input. This means that the firm should hire each input up to the point where the additional revenue it generates (the marginal revenue product) is equal to the additional cost of hiring one more unit of that input (the marginal factor cost). This ensures that the firm is using its resources efficiently and maximizing profits. Option A is incorrect because the marginal physical product of an input has no bearing on profit maximization. Option C is incorrect because the ratio of input hires to total costs is not relevant to profit maximization. Option D is incorrect because equal amounts of inputs may not be the most efficient or profitable choice.

Profit Maximization Requires That