Under perfect competition, a profit maximizing firm will hire labour up to the point where the last unit of labor adds

Step 1: Analyze the question We need the point at which a profit-maximizing firm stops hiring labour. This is the labour-demand rule in economics.

Step 2: The concept

• Extra revenue from hiring one more worker = Marginal Revenue Product (MRP), the addition to Total Revenue (TR).
• Extra cost of hiring that worker = Marginal Factor Cost (MFC), the addition to Total Cost (TC). Under perfect competition in the labour market, MFC = wage (W).
• Profit is maximized where MRP = MFC. Under perfect competition in the product market, MRP = VMP = MPP × P.

Step 3: Reasoning

• If the last worker adds more to TR than to TC (MRP > W), profit still rises, so the firm should hire more.
• If the last worker adds more to TC than to TR (MRP < W), profit falls, so the firm should hire fewer.
• Profit is maximized when the addition to TR equals the addition to TC, so MRP = W.

Step 4: Check the options

• A. as much to TR as to TC: this is the equilibrium condition, so it is correct.
• B. less to TR than to TC: the firm has over-hired.
• C. less to TC than to TR: the firm should hire more.
• D. more to TC than to TR: the firm has over-hired.
• E. more to TR than to TC: the firm should hire more.

**Answer: A.

Tip: For any input, the profit-maximizing rule is "marginal benefit = marginal cost." For labour, this means MRP = MFC (wage). If you see "adds as much to revenue as to cost," think equilibrium.