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Labor Supply and Demand Graphing
easy

In a perfectly competitive labor market, if the marginal revenue product of labor (MRPL) is greater than the marginal factor cost (MFC), firms will choose to hire more workers to maximize profits.

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Answer

In a perfectly competitive labor market, firms aim to maximize their profits by hiring workers based on the value they bring to the company. The marginal revenue product of labor (MRPL) is the additional revenue that each new worker generates. If this amount is higher than the marginal factor cost (MFC), which is the cost of hiring an additional worker, it makes sense for firms to hire more people. For example, if hiring one more worker increases revenue by $100 (MRPL) but costs only $80 (MFC), the firm gains an extra $20 in profit. Therefore, when MRPL exceeds MFC, firms will continue to hire until the two values are equal, ensuring they are making the most profit possible.

Detailed Explanation

When the extra money made from hiring one more worker (MRPL) is more than what it costs to hire them (MFC), firms can earn more profit. Other options are incorrect because Some might think that firms won't hire more workers if costs are high.

Key Concepts

Labor Supply and Demand
Marginal Revenue Product of Labor
Profit Maximization
Topic

Labor Supply and Demand Graphing

Difficulty

easy level question

Cognitive Level

understand

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