In order to maximize profits in the hiring of a factor, the firm will hire where MRP = MFC.

Question

Quizplus · Accepted Answer

This is because MRP (Marginal Revenue Product) is the additional revenue generated by hiring one more unit of a factor of production, while MFC (Marginal Factor Cost) is the additional cost incurred by hiring one more unit of the same factor. To maximize profits, the firm needs to hire the factor where the additional revenue generated by employing it equals the additional cost incurred in employing it, which occurs when MRP = MFC.

In Order to Maximize Profits in the Hiring of a Factor