If profit maximization is assumed to be the objective of a business enterprise, labour must be paid a wage rate equal to the?
Answer Details
Labour must be paid a wage rate equal to the marginal revenue product of labour in the enterprise. This means that the wage rate should be equal to the additional revenue generated by the last unit of labour hired. If the wage rate is lower than the marginal revenue product of labour, the enterprise can increase profits by hiring more labour. On the other hand, if the wage rate is higher than the marginal revenue product of labour, the enterprise can increase profits by reducing the amount of labour employed. Therefore, paying a wage rate equal to the marginal revenue product of labour ensures that the enterprise is able to maximize profits while also compensating labour fairly for their contribution to the production process.