Why must it equal the wage if a firm is maximising profits?

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1213378

2026-03-11 06:05

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In a profit-maximizing firm, the wage must equal the marginal product of labor (MPL) to ensure that the cost of hiring an additional worker is justified by the revenue generated from that worker. If the wage is less than the MPL, the firm can increase profits by hiring more workers, while if the wage exceeds the MPL, the firm would be better off reducing its workforce. Therefore, at profit maximization, the firm adjusts its labor until the wage equals the MPL, resulting in optimal resource allocation.

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