Question

When the representative firm maximizes profits _________. a. the marginal product of labor equals the wage.b. l product of labor equals the wage. c. production is at its maximum. d. labor costs are minimized. e. the slope of the production function is at its flattest.

Answer 1

a. the marginal product of labor equals the wage

Step-by-step explanation:

The marginal product of labor represents the increase in output as a result of employing one more unit of labor. It is the additional output associated with an extra unit of labor. The wage rate is the amount paid to workers for the provision of labor services.

For a firm to profit from an extra worker, the output from that worker must be equal or higher than the amount paid to the employee. In other words, the marginal product of labor must be equal to the wage rate. Should the wage exceed the marginal cost, the firm will incur losses.