Question

What is the rule that guides profit-seeking firms when deciding to hire more labor or use more of a specific resource?

O additional units of the resource when the sum of
O additional units adds more to a firm's total revenue than it adds to the firm's total costadd
O additional units of the resource when each successive unit adds more to a firm's total revenue than it adds to its total costadd
O additional units of the resource when every other successive unit subtracts more from a firm's total revenue than it adds to its total cost

Answer 1

Profit-seeking firms should hire more labor or use more of a resource as long as the marginal revenue from each additional unit exceeds the marginal cost. They should continue this until marginal revenue equals marginal cost. Firms also adapt to input prices and can benefit from economies of scale.

"the correct option is approximately option C"

Step-by-step explanation:

The rule that guides profit-seeking firms when deciding to hire more labor or use more of a specific resource is based on the relationship between marginal revenue (MR) and marginal cost (MC). A firm should add additional units of a resource if each successive unit adds more to the firm's total revenue than it does to its total cost, meaning the MR exceeds the MC. This process should continue until MR equals MC, indicating that the firm is maximizing profit at that level of output. Conversely, if the marginal costs exceed the marginal revenue, the firm should reduce production to increase profits.

Additionally, firms consider factors like input prices and economies of scale. If an input becomes more expensive, firms might use less of it and instead substitute other cheaper inputs, which helps explain why the demand curve for labor and other resources slopes downward. Economies of scale indicate that as output increases, the average cost per unit decreases, providing an incentive for firms to expand production to achieve lower costs and higher profits.