Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The marginal product of labor is high, leading to increased output and revenue.
B
The firm has decreased its wages, allowing for more hiring.
C
The market demand for the product has increased, regardless of labor input.
D
The additional worker has a lower marginal revenue than previous workers.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm hires an additional worker and sees a big increase in total revenue, it means that the new worker is adding more value than they cost. This value is known as the marginal revenue product, which is the extra revenue generated by that one additional worker. For example, if a worker helps produce more products that can be sold for $1,000, and their salary is only $500, the firm gains $500 in extra profit. This shows that hiring the worker is beneficial because the revenue they create is greater than their cost. Therefore, the firm should continue hiring more workers as long as each one adds more to revenue than they cost.
Detailed Explanation
When a firm hires more workers, each worker can produce more goods. Other options are incorrect because This answer suggests that lower wages allow more hiring; This option implies that higher demand alone increases revenue, ignoring the role of workers.
Key Concepts
Marginal Revenue Product
Marginal Product of Labor
Hiring Decisions
Topic
Calculating Marginal Revenue Product
Difficulty
easy level question
Cognitive Level
understand
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