Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A firm should hire additional workers as long as the MRP exceeds the wage paid to each worker.
B
MRP can decrease even if the marginal product of labor increases, if the price of the output falls.
C
A higher MRP indicates that the additional worker is less productive than previous workers.
D
Understanding MRP helps firms determine the optimal number of employees to maximize profits.
E
The MRP is always equal to the marginal product of labor regardless of the market price.
Understanding the Answer
Let's break down why this is correct
Answer
Calculating the Marginal Revenue Product (MRP) in a competitive labor market helps businesses understand how much additional revenue they can earn by hiring one more worker. The MRP is determined by multiplying the additional output produced by the worker by the price at which that output can be sold. For example, if hiring one more worker increases production by 10 units and each unit sells for $5, the MRP would be $50. This information is important because it helps employers decide how many workers to hire; they will typically hire more workers as long as the MRP is greater than or equal to the wage they need to pay. Therefore, understanding MRP can guide companies in making effective hiring decisions to maximize profits.
Detailed Explanation
All the statements provided misunderstand how MRP works in relation to hiring and productivity. Other options are incorrect because This suggests that hiring more workers is always good if MRP is higher than wages; This implies that MRP can increase with more workers, even if prices drop.
Key Concepts
Marginal Revenue Product
Labor Economics
Profit Maximization
Topic
Calculating Marginal Revenue Product
Difficulty
hard level question
Cognitive Level
understand
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