A profit-maximizing firm will use more of a factor of production when: A.The ext

Question

A profit-maximizing firm will use more of a factor of production when:

A.The extra cost of using an additional factor unit is less than the marginal revenue product of the additional factor unit.

B. The marginal physical product of the additional factor unit is greater than the marginal revenue product (MRP) of the additional factor unit.

C. The extra cost of using an additional factor unit is less than the marginal physical product of the additional factor unit.

D. The marginal physical product of the additional factor unit is less than the marginal revenue product of the additional factor unit.

Explanation / Answer

answer is >> A

ANSWER IS >> The extra cost of using an additional factor unit is less than the marginal revenue product of the additional factor unit

because:

Profit maximising condition is when MC=MRP because firm will produce more as long as by producing another unit of output revenue received greater than cost.
Here extra cost of using another factor = MC

Since WR=MC ie wages are a cost to the firm.
Then if WR>MRP, hiring another worker gives u less revenue from your products so we will hire less workers until MR=MRP (or close down if that doesnt happen)

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