Final answer:
The primary goal of a firm is profit maximization, notably by hiring workers to the point where the marginal revenue product equals the market wage, such as hiring up to 4 workers if the MRP is $20 at a $20 market wage, or until the value of the marginal product equals the market wage in a competitive labor market.
Step-by-step explanation:
The primary goal of a firm, particularly in a capitalist economy, is profit maximization. This is achieved by making decisions that increase the value of the business's profits and shareholder returns. The concept is also reflected in hiring strategies. For example, a firm looking to maximize profit will hire workers up to the point where any additional hiring would not produce enough revenue to justify the costs of employing another worker. This occurs where the market wage equals the marginal revenue product (MRP). For instance, if the market wage is $20, and the MRP is also $20, the firm has reached its profit-maximizing level of employment. In this scenario, if the firm's profit-maximizing level of employment is 4 workers, it would not hire a fifth worker unless the MRP for that worker exceeds $20.
In a perfectly competitive labor market, a firm will continue hiring until the value of the marginal product produced by the last worker equals the wage rate. If the going market wage is $12, the profit-maximizing level is reached when the marginal product's value provided by the last worker is $12. Any additional hiring beyond this point would not contribute to profit maximization, as the cost of hiring (wage) would be higher than the incremental revenue generated by the worker (marginal product).