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Author Question: If the firm is using only one variable input, explain why the condition W = MRPL is thesame ... (Read 54 times)

Ebrown

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on: Jun 29, 2018
If the firm is using only one variable input, explain why the condition W = MRPL is thesame condition as P = MC.
 
  What will be an ideal response?

Question 2

HK Sweaters, Incorporated employs labor at a wage rate of 12 per hour and rents capital for30 per hour. At its current level of labor and capital, the marginal product of labor is 24 and the marginal product of capital is 60 .
 
  Is the firm currently maximizing profit? Explain.


meganlapinski

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Reply #1 on: Jun 29, 2018
Answer to Question 1

In both cases, the firm compares costs with potential revenues. As long as the wage equals the marginal revenue product of labor, the additional revenue just covers the additional costs of hiring labor and the firm is maximizing profits. By producing where price equals marginal cost, the firm is producing up to the point where additional costs equal additional revenues.

Answer to Question 2

Yes, the firm is currently maximizing profit. The firm should hire labor and capital such that MPL/PL is equal to MPK/PK. In this case, MPL/PL (2) is equal to MPK/PK (2). Thus, the firm is maximizing profit.


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