Labor Economics
8th Edition
ISBN: 9781260484434
Author: George Borjas
Publisher: Mcgraw-hill Higher Education (us)
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Question
Chapter 3, Problem 1RQ
To determine
Explain the strategy of a firm to maximize his or her profit.
Expert Solution & Answer
Explanation of Solution
A profit maximizing firm will hire the employers at the point where the wage of the labor is equal to the value of marginal product. This is because the marginal product is the price of the product that a firm will earn through the sales of a product. If the firm gives the wages to the labor (is the firms cost of production) is less than his earning, he will attain a profit and he will not get any benefit or profit when the cost of production is greater than the gain.
This same idea is used by the firm in his output setting. A firm will set its level of output at the point where output price (MR) equal to its marginal cost.
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