If a firm wants to maximize profits, it should hire workers up to the point at which

Question

Quizplus · Accepted Answer

Hiring workers up to the point where marginal factor cost (MFC) is equal to marginal revenue product (MRP) will maximize profits. If the MFC is less than the MRP, the firm should hire more workers because the additional units of labor will generate more revenue than they cost. If the MFC is greater than the MRP, the firm should hire fewer workers because the additional units of labor will cost more than they generate in revenue. Therefore, the point where MFC=MRP is the optimal level of employment for profit maximization.

If a Firm Wants to Maximize Profits, It Should Hire