Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Calculate the marginal product of labor.
B
Compare marginal revenue product to marginal factor cost.
C
Hire additional workers until MRP equals MFC.
D
Determine the price of the good being produced.
Understanding the Answer
Let's break down why this is correct
Answer
To determine the optimal number of employees to hire for profit maximization, a firm first assesses its production needs based on the demand for its products. Next, it calculates the marginal product of labor, which is the additional output produced by hiring one more worker. The firm then compares this marginal product to the wage it must pay for that worker. If the marginal product is greater than the wage, hiring more workers will increase profits. Finally, the firm continues this process until the marginal product equals the wage, ensuring that it maximizes profit by hiring the right number of employees.
Detailed Explanation
First, a firm needs to find out how much extra output each new worker can produce. Other options are incorrect because Some might think comparing revenue and costs is the first step; It's easy to think you should just hire until costs and revenue match.
Key Concepts
Profit Maximization in Labor Markets
Marginal Revenue Product and Marginal Factor Cost
Labor Demand
Topic
Profit Maximization in Labor Markets
Difficulty
easy level question
Cognitive Level
understand
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