Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Hiring workers until the marginal revenue product equals the wage
B
Paying workers the minimum wage
C
Hiring as many workers as possible regardless of cost
D
Reducing output to increase wages
Understanding the Answer
Let's break down why this is correct
Answer
The primary condition for a firm to maximize profits in a competitive labor market is to hire workers until the cost of hiring one more worker equals the additional revenue that worker brings in. This means that a firm should keep adding workers as long as the money earned from their work is greater than or equal to the wages paid. For example, if hiring one more worker costs $15 per hour and that worker generates $20 in revenue, the firm should hire them because they increase profit. However, if the worker only generates $10, the firm would lose money by hiring them, so they should stop. By following this principle, firms can ensure they are using their resources efficiently to maximize profits.
Detailed Explanation
A firm maximizes profits by hiring workers until the extra money earned from their work equals what they are paid. Other options are incorrect because Some might think paying the lowest wage is best for profits; The idea that hiring as many workers as possible is good can be misleading.
Key Concepts
marginal revenue
Topic
Profit Maximization in Labor Markets
Difficulty
easy level question
Cognitive Level
understand
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