A profit-maximizing firm will hire an additional unit of a resource as long as the
A)marginal product of the resource is greater than the marginal resource cost
B)marginal product of the resource is less than the marginal resource cost
C)marginal revenue product of the resource is greater than the marginal resource cost
D)marginal revenue product of the resource is less than the marginal resource cost
E)price of the resource is less than the marginal resource cost

Question

Quizplus · Accepted Answer

A profit-maximizing firm will choose to hire an additional unit of a resource as long as the marginal revenue product of the resource is greater than the marginal resource cost. This is because the marginal revenue product represents the additional revenue generated by hiring one more unit of the resource, while the marginal resource cost represents the additional cost of hiring one more unit. If the marginal revenue product is greater than the marginal resource cost, then the firm can increase its profits by hiring another unit. Choice A is incorrect because the marginal product refers to the additional output generated by hiring one more unit, but it doesn't take into account the revenue generated by that output. Choice B is incorrect because if the marginal product is less than the marginal resource cost, then hiring another unit would decrease profits, not maximize them. Choice D is incorrect because the marginal revenue product needs to be greater than the marginal resource cost, not less. Choice E is also incorrect because it doesn't take into account the additional revenue generated by hiring one more unit of the resource.

A Profit-Maximizing Firm Will Hire an Additional Unit of a Resource