We can show that a profit-maximizing firm will hire the number of workers such that the wage is equal to the value of the marginal product of labor. But, as the text showed in an earlier chapter, a profit-maximizing firm will produce the quantity of output such that price equals marginal cost. Are these two rules inconsistent?

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16-10-2019
Business

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We can show that a profit-maximizing firm will hire the number of workers such that the wage is equal to the value of the marginal product of labor. But, as the text showed in an earlier chapter, a profit-maximizing firm will produce the quantity of output such that price equals marginal cost. Are these two rules inconsistent?

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DelcieRiveria DelcieRiveria · Answer 1 · 2019-10-17T13:56:25+02:00

Answer:

No, these two rules are not inconsistent.

Explanation:

A profit-maximizing firm will hire the number of workers such that the wage is equal to the value of the marginal product of labor.

But, a profit-maximizing firm will also produce the quantity of output at the level where price equals marginal cost.

But this does not mean that these two rules contradict or are not consistent. Hiring workers at the level where their wage is equal to the marginal product of labor helps the firm in reaching the point where the price of the product is equal to the marginal cost of production.