Answer to Question #60401 in Microeconomics for Bob

Question

In a competitive labour market, with one variable factor, the supply of labour to the firm is

a. equal to the marginal expenditure curve.
b. equal to the demand curve for labour.
c. greater than the marginal expenditure curve.
d. equal to the marginal revenue product curve.

Answer 1

d. equal to the marginal revenue product curve

In a competitive labour market the individual firm is a wage-taker. From the perspective of the firm, the marginal revenue product is the marginal benefit to the firm of hiring an additional unit of labour. A profit-maximizing firm will increase its factors of production until their marginal benefit is equal to the marginal cost. Therefore, firms will continue to add labour (hire additional workers) until the marginal revenue product equals the wage rate. Thus, workers earn a wage equal to the marginal revenue product of their labor.