The rule for employing a profit-maximizing amount of labor is to continue to hire additional workers until the additional worker's value of marginal product is
A) less than the wage rate.
B) equal to the wage rate.
C) greater than 1.
D) less than the price of the product.
E) equal to the price of the product.

Question

Quizplus · Accepted Answer

The value of marginal product (VMP) is the additional revenue generated by an additional worker. The profit-maximizing rule is to keep hiring workers until the VMP is equal to the wage rate. This is because if the VMP is greater than the wage rate, hiring an additional worker generates more revenue than the cost of the worker's wage, increasing profits. However, if the VMP is less than the wage rate, hiring an additional worker generates less revenue than the cost of the worker's wage, decreasing profits. Therefore the answer is B, where the additional worker's VMP is equal to the wage rate.

The Rule for Employing a Profit-Maximizing Amount of Labor Is