Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is A)P × MP = W. B)P × MP W. D)P × W MP.

Question

Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is
A)P × MP = W.
B)P × MP < W.
C)P × MP > W.
D)P × W > MP.

Quizplus · Accepted Answer

In order to hire another worker, the marginal revenue product (MRP) (which equals P × MP) must be greater than the wage (W). This is because if the MRP is less than the wage, the firm would be losing money by hiring the additional worker. Therefore, the correct inequality is P × MP > W, which is represented by choice C.

Let MP = Marginal Product, P = Output Price, and W