If a profit-maximizing firm hires an additional unit of labor,which of the following is true of that labor's wage and marginal revenue product?
A)Its wage always equals its marginal revenue product.
B)Its wage is always greater than its marginal revenue product.
C)Its wage is always equal to its average revenue.
D)Its wage is always less than its marginal product.
E)Its wage is always less than or equal to its marginal revenue product.

Question

Quizplus · Accepted Answer

A profit-maximizing firm will hire an additional unit of labor as long as its marginal revenue product (MRP) is greater than or equal to its wage. Therefore, the wage paid to the additional unit of labor will always be less than or equal to its marginal revenue product, making option E the correct answer. Options A, B, and C are incorrect because the wage may not always equal or exceed the marginal revenue product. Option D is incorrect because the wage can be greater than the marginal product in certain cases where the firm is not operating at maximum efficiency.

If a Profit-Maximizing Firm Hires an Additional Unit of Labor,which