Multiple Choice QuestionIt will be profitable for a firm to hire additional units of a resource up to the point at which that resource's Blank______ is equal to its Blank______.Multiple choice question.total revenue product; total resource costmarginal revenue product; marginal resource costmarginal revenue product; marginal revenue costmarginal revenue product; total resource cost
Question
Multiple Choice QuestionIt will be profitable for a firm to hire additional units of a resource up to the point at which that resource's Blank______ is equal to its Blank______.Multiple choice question.total revenue product; total resource costmarginal revenue product; marginal resource costmarginal revenue product; marginal revenue costmarginal revenue product; total resource cost
Solution
The correct answer is: marginal revenue product; marginal resource cost.
Here's why:
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The marginal revenue product (MRP) is the additional revenue generated by the use of one more unit of a resource.
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The marginal resource cost (MRC) is the additional cost incurred by employing one more unit of a resource.
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A firm maximizes its profit by using resources up to the point where the MRP equals the MRC. This is because, at this point, the cost of employing an additional unit of a resource equals the revenue generated by that unit.
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If the MRP is greater than the MRC, the firm can increase its profit by using more of the resource. If the MRC is greater than the MRP, the firm should use less of the resource.
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Therefore, it is profitable for a firm to hire additional units of a resource up to the point at which that resource's marginal revenue product is equal to its marginal resource cost.
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