The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor

-An individual purchasing goods and services will allocate his expenditures so that the pleasure he gets out of spending one more dollar is the same no matter what he spends that dollar on. For a firm purchasing resources, this is the same as ensuring that:
A)the ratio between marginal revenue product and the marginal factor cost is equal for all the resources used.
B)the marginal revenue product of the resources are equal.
C)the marginal factor cost of the resources are equal.
D)the ratio between marginal revenue product and the marginal factor cost is greater than one for all resources.
E)the marginal revenue product is greater than the marginal factor cost of all resources.

Question

The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor
 
-An individual purchasing goods and services will allocate his expenditures so that the pleasure he gets out of spending one more dollar is the same no matter what he spends that dollar on. For a firm purchasing resources, this is the same as ensuring that:
A)the ratio between marginal revenue product and the marginal factor cost is equal for all the resources used. 
B)the marginal revenue product of the resources are equal. 
C)the marginal factor cost of the resources are equal. 
D)the ratio between marginal revenue product and the marginal factor cost is greater than one for all resources. 
E)the marginal revenue product is greater than the marginal factor cost of all resources.

Quizplus · Accepted Answer

A firm maximizes its profit by employing resources up to the point where the marginal revenue product (MRP) is equal to the marginal factor cost (MFC). In other words, it would not be profitable to hire additional workers if they add less value to the production than their costs. Therefore, the firm should allocate its expenditures so that the ratio between MRP and MFC is equal for all the resources used. This ensures that the firm is using resources efficiently and getting the most benefit from every dollar spent.

The Figure Given Below Represents Equilibrium in the Labor Market