Question

The profit maximizing firm will hire labour up to the point​ where:

A.

MRP Subscript Upper L Baseline equals Upper W greater than Upper PMRPL=W>P

B.

Upper W equals MRP Subscript Upper L Baseline equals AR star MP Subscript Upper LW=MRPL=AR*MPL

C.

Upper W equals Upper P equals ARW=P=AR

D.

MRP Subscript Upper L Baseline equals Upper P star MP Subscript Upper L Baseline less than Upper W

Answer 1

Ans. The profit maximizing firm hires the labor input till the point where the each additional labor input produces goods that have market vale greater than the wage given to him.

So, profit maximizing condition is,

MRPL = P*MPL = w

Where, MRPL is the marginal revenue product if labor

P = Proce of the output

MPL = Marginal product of labor

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w = wage

We can also right, Price as Average revenue(AR) because aberage revenue from a good represents the maximmum willingness of the consumer to pay for the good.

Thus, profit maximizing condition becomes,

MRPL = AR*MPL = w