Final answer:
To study labor markets, we assume firms aim to maximize profits, which influences their labor demands based on the marginal productivity value. A firm hires workers until the market wage equals the marginal revenue product of labor, determined by the competitive labor market conditions.
option c is the correct
Step-by-step explanation:
In order to study labor markets more easily, we make a number of assumptions about firms. One key assumption is that firms operate with the intent to maximize profits rather than just maximizing revenues. This assumption is fundamental because profit maximization drives the firm's decision-making, including how much labor to employ.
Firms demand labor because labor contributes to production, and the value of this contribution can be measured by the labor's marginal productivity. Specifically, in a perfectly competitive market, a firm's demand for labor is based on the value of the marginal product, calculated by multiplying the marginal product of labor by the firm's output price. In a non-perfectly competitive market, the concept of marginal revenue product is used, which is the marginal product of labor multiplied by the firm's marginal revenue.
Profit-maximizing firms will hire workers up to the point at which the market wage is equal to the marginal revenue product. Market wage is determined by the interaction of market supply and market demand for labor. If the firm operates in a perfectly competitive labor market and the going market wage is $12, the firm's profit-maximizing level of employment will be where this wage equals the marginal revenue product of labor.