Asked by Jennifer Knott on Jul 12, 2024
Verified
A profit-maximizing firm will:
A) expand employment if marginal revenue product exceeds marginal resource cost.
B) reduce employment if marginal revenue product exceeds marginal resource cost.
C) expand employment if marginal revenue product equals marginal resource cost.
D) reduce employment if marginal revenue product equals marginal resource cost.
Marginal Revenue Product
The additional revenue generated from employing one more unit of a factor, such as labor or capital.
Marginal Resource Cost
The additional cost incurred by acquiring one more unit of a resource, such as labor or raw materials.
- Determine the scenarios wherein a firm achieves peak profitability in the contexts of labor and product markets.
Verified Answer
AA
Angelina Angelina1Jul 13, 2024
Final Answer :
A
Explanation :
A profit-maximizing firm will hire more workers if the marginal revenue product (MRP) - the additional revenue gained from hiring one more worker - is greater than the marginal resource cost (MRC) - the additional cost of hiring one more worker. This is because the firm will earn more revenue from the additional worker than it costs to hire them. Therefore, choice A is the correct answer.
Learning Objectives
- Determine the scenarios wherein a firm achieves peak profitability in the contexts of labor and product markets.