In a competitive labour market, a profit-maximizing firm hires workers up to the point where the value of marginal product of labour equals the:
Correct answer: B. Market wage rate
- A. Worker's average product
- B. Market wage rate
- C. Firm's average fixed cost
- D. Total revenue from output
Explanation
The firm compares the extra revenue generated by a worker with the extra wage cost of hiring that worker. It expands employment until the value of marginal product equals the market wage.
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About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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