Answer to Question #286668 in Macroeconomics for Elina

Question

Explain the relationship between profit maximization condition and the labor demand as shown by equation MPNi=W/P?(Froyen CH 3 Eq-3.4)

Answer 1

If a firm takes labour to be the variable out, profit optimization occurs at the level where marginal product of labour equals the real wage.

Therefore the equation is as follows;

MPN= W/P

This gives the various labour quantities that can be hired at different wage rates in order to maximize profits for a firm.