A firm should continue hiring additional workers until the marginal revenue product of labor is less than the marginal factor cost to ensure maximum profit.

When a firm hires workers, it wants to make sure that each new worker adds enough value to the business to justify their cost. The marginal revenue product of labor is the extra money the firm makes from hiring one more worker. If this amount is greater than what it costs to hire that worker, then it makes sense to keep hiring. However, once the additional money earned from the worker is less than what the firm has to pay them, it’s better to stop hiring because it could hurt profits. For example, if a company hires a worker who produces $100 worth of goods but costs $120 to employ, hiring that worker would lead to a loss, so the firm should stop adding more workers.