The optimal quantity of labor rule indicates that a profit-maximizing firm will hire labor up to the point at which the MRP it receives from the last unit of labor hired is _______________ the MC of labor.
A) equal to
B) greater than
C) less than

Question

Quizplus · Accepted Answer

At the optimal quantity of labor, the marginal revenue product (MRP) is equal to the marginal cost of labor (MC), therefore, hiring an additional unit of labor will not increase the firm's profits. If MRP is greater than MC for an additional unit of labor, the firm will still be able to increase its profits by hiring more labor. If MRP is less than MC for an additional unit of labor, the firm will be losing money by hiring additional labor. Therefore, the optimal choice is to hire labor up to the point where MRP equals MC.

The Optimal Quantity of Labor Rule Indicates That a Profit-Maximizing