Chapter 13, Problem 1RQ

To determine

Optimal condition of hiring labor.

Explanation of Solution

When the marginal revenue of labor equals to marginal cost of labor, it is the optimal situation to hire workers in the firm. To increase the extra unit of output, the firm uses one more unit of labor. The optimal situation to hire labor is given below:

$\text{MR}=\frac{\text{W}}{\text{MPL}}$

The equation can be remarriage by multiplying both sides of the equation by the marginal product of labor.

$\text{MR}\times \text{MPL}=\text{W}$

This equation states that a firm can hire a worker until marginal revenue product of labor is equal to marginal cost of labor to the firm.

Economics Concept Introduction

Marginal revenue: Marginal revenue refers to the amount of extra revenue attained in the process of increasing one more unit of output.

Marginal product of labor: Marginal product of labor is the additional output a firm produces as a result of employing an extra unit of labor.