Firms continue to employ workers until the wage rate equals the?
Answer Details
Firms continue to employ workers until the wage rate equals the marginal revenue product of labor.
The marginal revenue product of labor is the additional revenue generated by the firm from hiring one additional worker. The wage rate represents the cost of hiring that additional worker.
In order to maximize profits, firms will continue to hire workers as long as the marginal revenue product of labor is greater than or equal to the wage rate. This is because each additional worker adds more revenue to the firm than their cost in wages.
However, once the wage rate exceeds the marginal revenue product of labor, the cost of hiring an additional worker becomes greater than the revenue they generate, leading to a decrease in the firm's profits. Therefore, the firm will stop hiring workers at this point to avoid any further decrease in profits.
In summary, the wage rate equals the marginal revenue product of labor when the firm hires the optimal number of workers that will maximize its profits.