The condition for hiring factors of production- that is, where MFC = MRP- is analogous to the profit-maximizing output condition:
A) TR = TC.
B) MR = MC.
C) AR = ATC.
D) P = MR.

Question

Quizplus · Accepted Answer

The condition for hiring factors of production (MFC = MRP) is similar to the profit-maximizing output condition (MR = MC) because in both cases, the decision maker (whether it's a firm or an individual factor supplier) is trying to maximize their revenue or income while taking into account the costs associated with their decision. This requires them to compare the marginal revenue (MRP or MR) they will earn from an additional unit of the factor or output to the marginal cost (MC or MFC) of producing it. When MR or MRP exceeds MC or MFC, it is profitable to hire the factor or produce more output, and when MC or MFC exceeds MR or MRP, it is not. Thus, B is the best choice. A, C, and D are not directly related to the decision of whether to hire a factor of production.

The Condition for Hiring Factors of Production- That Is, Where