A profit-maximizing firm will use additional units of resources for production until
A) total, average, and marginal cost are equal.
B) total, average, and marginal revenue are equal.
C) the marginal revenue product equals the marginal resource cost.
D) the marginal revenue product is greater than the marginal resource cost.

Question

Quizplus · Accepted Answer

A profit-maximizing firm will use additional units of resources for production until the marginal revenue product (the additional revenue generated by employing an additional unit of resource) equals the marginal resource cost (the cost of acquiring an additional unit of resource). This is because at this point, the firm is still adding to its profits by using more resources. If the marginal revenue product is greater than the marginal resource cost, the firm will continue to hire more resources because doing so will increase its profits. However, if the marginal revenue product is less than the marginal resource cost, the firm will not hire additional resources, as doing so would result in a loss.

A Profit-Maximizing Firm Will Use Additional Units of Resources for Production