The Marginal Productivity Principle Says That a Profit-Maximizing Firm Should

question 7

Multiple Choice

The marginal productivity principle says that a profit-maximizing firm should

• A) hire capital until its marginal product is zero.
• B) hire labor until another worker costs more to hire than he can earn for the firm.
• C) hire the quantities of capital and of labor at which their marginal products are equal.
• D) hire capital until its marginal product is negative.

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Definitions:

Corporate Bond

A debt security issued by a corporation to raise funding. It obligates the issuer to pay interest and repay the principal at a later date.

Bondholder

An individual or entity that owns bonds issued by corporations, governments, or other institutions, which means they have lent money to the issuer in exchange for interest payments and the return of principal at maturity.

Firm's Profits

The financial gain achieved by a company after subtracting all its costs from its total revenues.

Capital

Economic resources used in the production of goods, including physical assets like machinery, buildings, or human skills and knowledge.