If firms hire workers until the real wage,W/P,is equal to the marginal product of labor,MPN,then the firm
A)maximizes employment.
B)maximizes employment and profits.
C)maximizes profits.
D)minimizes "waste," such as pollution.

Question

Quizplus · Accepted Answer

The firm maximizes its profits by hiring workers until the real wage equals the marginal product of labor. This is because at that point, the additional cost of hiring one more worker (the increase in wages) is equal to the additional output produced by that worker (the marginal product). Hiring any additional workers beyond this point would result in diminishing returns, where the cost of hiring an additional worker would be greater than the additional output produced, leading to a decrease in profits. Therefore, the firm maximizes its profits by hiring workers until the real wage equals the marginal product of labor.

If Firms Hire Workers Until the Real Wage,W/P,is Equal to the Marginal