Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
By comparing MRPL to the wage rate paid to employees
B
By ensuring MRPL is always greater than total revenue
C
By maximizing the number of employees regardless of output
D
By calculating the average cost of production only
Understanding the Answer
Let's break down why this is correct
Answer
A firm determines the optimal number of employees to hire by looking at the Marginal Revenue Product of Labor (MRPL). MRPL is the additional revenue generated from hiring one more worker. To find the optimal number of employees, the firm compares the MRPL to the wage it has to pay each worker. If the MRPL is greater than the wage, it means hiring that worker will add more value than it costs, so the firm should hire them. For example, if hiring an additional employee brings in $100 in revenue, but the wage is only $80, the firm would benefit from hiring that employee.
Detailed Explanation
A firm looks at MRPL, which shows how much extra money each new worker brings in. Other options are incorrect because Some might think MRPL needs to be more than total revenue; Thinking that hiring as many workers as possible is best is a common mistake.
Key Concepts
Marginal Revenue Product of Labor
Optimal Hiring Decisions
Labor Costs
Topic
Calculating Marginal Revenue Product
Difficulty
easy level question
Cognitive Level
understand
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