Firms should hire additional units of a resource as long as the: a

Marketing Dec 22, 2020

Firms should hire additional units of a resource as long as the:

a. marginal product of the resource exceeds price of the resource multiplied by the quantity of output produced

b. marginal product of the resource is less than the price of the resource

c. price of the output produced is positive

d. marginal revenue product of the resource exceeds the cost of an additional unit of the resource.

Expert Solution

The correct answer is option d. marginal revenue product of the resource exceeds the cost of an additional unit of the resource.

Explanation:

Firms ensure maximum profit when the marginal cost is equal to the marginal revenue. Suppose if the marginal revenue surpasses the marginal cost, then it is said that the firm is not generating maximum goods. Hence, its output should be increased until the profit gets maximized.

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