Firms are willing to buy labor up to the point where the marginal revenue product of labor is equal

Firms are willing to buy labor up to the point where the marginal revenue product of labor is equal

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Unformatted text preview: Firms are willing to buy labor up to the point where the marginal revenue product of labor is equal to the market wage. What does this mean? The marginal revenue product is the extra revenue a firm generates when they buy one more unit of input (in this case, the input is labor: a unit of labor isn't a new employee, it's another unit of work; an example would be an additional hour of work). As long as the income generated by extra hours of work balances (or exceeds) the wages paid for those extra hours of work, firms will be willing to pay for more labor. If the marginal revenue product (MRP) of labor is equal to the market wage, the firms will be at their optimal point of labor consumption, since buying more labor would mean that the MRP is less than the wage, and buying less labor would mean that the MRP is greater than the wage. If the marginal revenue product of labor is less than the market greater than the wage....
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This note was uploaded on 12/13/2011 for the course ECO 1320 taught by Professor Staff during the Fall '11 term at Texas State.

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Firms are willing to buy labor up to the point where the marginal revenue product of labor is equal

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