Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Hire until the marginal revenue product equals the marginal factor cost
B
Hire until total costs exceed total revenue
C
Hire until the number of workers is maximized regardless of costs
D
Hire based on the fixed wage rate alone
Understanding the Answer
Let's break down why this is correct
Answer
In a perfectly competitive labor market, a firm decides to hire additional workers based on the concept of marginal productivity. This means the firm will look at how much extra output each new worker can produce and compare that to the cost of hiring them. If the additional output generated by a new worker is greater than the wage paid to that worker, it makes sense to hire them. For example, if hiring one more worker leads to producing 10 more units of a product, and the wage for that worker is less than the value of those 10 units, the firm should go ahead and hire. This process continues until the cost of hiring an additional worker equals the value of the output they produce.
Detailed Explanation
A firm should hire workers until the extra money they make from hiring one more worker equals the cost of that worker. Other options are incorrect because This option suggests hiring until costs are too high; Hiring as many workers as possible can lead to waste.
Key Concepts
Marginal Revenue Product (MRP)
Marginal Factor Cost (MFC)
Perfect Competition
Topic
Labor Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.