Asked by Malusi Pakade on Jul 04, 2024
Verified
A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until:
A) marginal revenue product is zero.
B) marginal revenue product exceeds marginal resource (labor) cost by the greatest amount.
C) marginal resource cost is zero.
D) marginal revenue product equals marginal resource (labor) cost.
Purely Competitive
A market structure characterized by a large number of small firms, a homogeneous product, and free entry and exit.
Marginal Revenue Product
The additional revenue generated from using one more unit of a factor of production.
Marginal Resource Cost
The additional cost incurred by acquiring one more unit of a resource, such as labor or materials.
- Identify the conditions under which a firm maximizes profit in labor and product markets.
Verified Answer
DG
Dahryl GrantJul 09, 2024
Final Answer :
D
Explanation :
In a purely competitive labor market, the firm's marginal resource (labor) cost is equal to the wage rate. Therefore, the firm should hire labor until the marginal revenue product (MRP) equals the wage rate. This is because if the MRP is higher than the wage rate, hiring one more unit of labor will increase the firm's profit. However, if the MRP is lower than the wage rate, hiring one more unit of labor will decrease the firm's profit. Thus, the best choice is D, where the firm hires labor until MRP equals the wage rate.
Learning Objectives
- Identify the conditions under which a firm maximizes profit in labor and product markets.