Answer to Question #183831 in Microeconomics for Katso

Question

explain why firms will continue hiring workers until the marginal revenue product of labour is ewual to the wage rate

Answer 1

The marginal product of labor (MPL) is the additional quantity of output produced as a result of the use of an additional unit of labor.

When a firm decides whether or not to hire an additional unit of labor, it thinks about how it will affect its bottom line. It compares the incremental revenue from the additional output to the increase in wage costs. As long as the additional income exceeds the wage rate, the additional unit of labor increases the profit.