Paper 3 · Unemployment
According to the marginal revenue productivity theory of labour demand, a profit-maximising firm hires workers up to the point where the marginal revenue product of labour equals the ___.
Model answer
wage rate
Also accepted: the wage rate, wage
Explanation: A firm keeps hiring as long as an extra worker adds more to revenue than to cost. Profit is maximised where the marginal revenue product of labour equals the wage rate, since hiring beyond that point would cost more than the worker adds to revenue.
Derived from ZIMSEC Economics Paper 3, June 2004, Q5
