Each firm employs labour up to the point where the marginal revenue product of labour equals the:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → wage rate
A firm hires one more unit of labour as long as it adds more to revenue than to cost. The extra cost is the wage rate. The extra revenue is the marginal revenue product of labour, MR × MPL. So the firm stops where the two are equal.
Price and marginal revenue are only parts of MRPL; they are not what MRPL is set equal to.
NCERT (2026-27): “Wage Determination in Labour Market … The firm being a profit maximiser will always employ labour upto the point where the extra cost she incurs for employing the last unit of labour is equal to the additional benefit she earns from that unit. The extra cost of hiring one more unit of labour is the wage rate (w). The extra output produced by one more unit of labour is its marginal product (MPL) and by selling each extra unit of output, the additional earning of the firm is the marginal revenue (MR) she gets from that unit. Therefore, for each extra unit of labour, she gets an additional benefit equal to marginal revenue times marginal product which is called Marginal Revenue Product of Labour (MRPL). Thus, while hiring labour, the firm employs labour up to the point where w = MRPL and MRPL = MR × MPL” “Summary … Each firm employs labour upto the point where the marginal revenue product of labour equals the wage rate.” |