Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
By equating marginal revenue product of labor to the wage rate
B
By maximizing total output regardless of costs
C
By hiring as many workers as possible without considering costs
D
By increasing wages until all workers are satisfied
Understanding the Answer
Let's break down why this is correct
Answer
A firm determines the optimal quantity of labor to employ by looking at how much additional output each worker can produce compared to the cost of hiring them. This is known as the marginal product of labor, which is the extra output generated by adding one more worker. The firm will keep hiring workers as long as the value of the additional output they create is greater than their wage. For example, if hiring one more worker increases production by enough to earn $100, but that worker costs $80 in wages, it makes sense for the firm to hire them. Ultimately, the firm aims to balance the cost of labor with the revenue generated from the goods produced, maximizing its profits.
Detailed Explanation
A firm finds the best number of workers by comparing how much money each worker brings in to how much they are paid. Other options are incorrect because Some might think that just making more products is the goal; It's a common mistake to think hiring many workers is always good.
Key Concepts
labor demand
marginal revenue
profit maximization
Topic
Profit Maximization in Labor Markets
Difficulty
hard level question
Cognitive Level
understand
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