2. Profit maximization A profit-maximizing firm will use less of a factor of pro
ID: 1164249 • Letter: 2
Question
2. Profit maximization A profit-maximizing firm will use less of a factor of production when: O The marginal physical product of the additional factor unit is greater than the marginal revenue product (MRP) of the O The extra cost of using an additional factor unit is greater than the marginal physical product (MPP) of the additional O The marginal physical product of the additional factor unit is less than the marginal revenue product of the additional O The extra cost of using an additional factor unit is greater than the marginal revenue product of the additional factor additional factor unit. factor unit. factor unit. unit. Apply your answer as an argument to the labor market-when the wage rate is below the MRP, the firm should hire workers Therefore, what is the relationship between a perfectly competitive firm's MRD curve for an input and that firm's demand curve for that input? O They are identical except for the units (and scale) of their vertical axes. O The firm's demand curve for an input is the downward-sloping portion of the MRP curve. O They are unrelatedExplanation / Answer
1. A profit maximizing firm will use less of a factor of production when
The extra cost of using an additional factor unit is greater than the marginal revenue product of the additional factor unit.
2. Apply your answer as an argument to the labor market—when the wage rate is below the MRP, the firm should hire more workers.
(A firm should employ more labor as long as MRP is greater than the wage rate, in other words as long as each additional worker's input to total revenue is greater than the cost of hiring the worker but a firm should employ fewer labor when MRP is less than the wage rate (w) because the extra worker contributes less to total revenue than it cost the firm to employ it)
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