If a firm increases its labor force and notices that the marginal revenue product (MRP) decreases, it indicates that each additional worker is contributing less to overall revenue than the previous workers, which may suggest diminishing returns to labor.

When a firm hires more workers, it expects that each new worker will help produce more goods and generate more revenue. However, if the marginal revenue product (MRP) is decreasing, it means that each additional worker is contributing less to the revenue than the worker before. This often happens because, after a certain point, there may be too many workers for the amount of resources available, like equipment or space, leading to less efficient production. For example, if a factory has ten workers and produces 100 toys, adding an eleventh worker might only increase production to 105 toys, showing that the new worker is not as effective as the previous ones. This situation is called diminishing returns to labor, where adding more workers leads to smaller increases in output and revenue.