The amount of labour hired depends on the?

A. number of skilled labour available
B. skill of labour
C. marginal productivity of labour
D. price of the inputs

Correct Answer:

Option C – marginal productivity of labour

Explanation

The demand for an additional amount of labour depends on the Marginal Revenue Product (MRP). Firms will hire more labor when the marginal revenue product of labor is greater than the wage rate, and stop hiring as soon as the two values are equal.