Question

If a firm is using an optimal amount of a given input, which of the following is true?

a. The marginal cost of the resource cost is equal to the incremental revenue brought in by its use.

b. The marginal revenue product is maximized.

c. The marginal resource cost is equal to zero.

d. The difference between the marginal cost of the resource and the incremental revenue generated by its use is maximized.

Answer 1

In order to maximize profit a firm hres that amount of input where MRP of input = MRC of input

where MRP of input = Marginal revenue produt of input is the additional revenue received when firm hires one additional unit of labor and MRC of input = Marginal revenue Cost of input is the additional cost incurred in order to hire one additional unit of labor.

Thus Firm will hire that amount of input where Additional cost(Marginal cost) of that resource(or input) cost is equal to additional revenue that firm incurs by using that input. Thus option (a) is the correct answer

Hence, the correct answer is (a) The marginal cost of the resource cost is equal to the incremental revenue brought in by its use.