Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The firm should hire the worker because MRP exceeds MFC
B
The firm should not hire the worker because MRP equals MFC
C
The firm should hire the worker because MRP is less than MFC
D
The firm should not hire the worker because MRP is greater than MFC
Understanding the Answer
Let's break down why this is correct
Answer
In this scenario, the firm is making a decision about hiring workers based on the comparison of the marginal revenue product (MRP) and the marginal factor cost (MFC). The MRP of the fourth worker is $20, which means this worker adds $20 worth of value to the firm. The MFC of hiring that worker is $15, indicating that it costs the firm $15 to employ this worker. Since the MRP is greater than the MFC, it is beneficial for the firm to hire the fourth worker because they are generating more value than what it costs to hire them. This situation falls under the category of "profit maximization," as the firm aims to maximize its profits by hiring workers until the MRP equals the MFC.
Detailed Explanation
The firm should hire the worker because the extra money made from the worker (MRP) is greater than what it costs to hire them (MFC). Other options are incorrect because This answer suggests that the firm should not hire if MRP is equal to MFC; This answer is incorrect because it misunderstands the relationship between MRP and MFC.
Key Concepts
Marginal Revenue Product (MRP)
Marginal Factor Cost (MFC)
Profit Maximization
Topic
Labor Market Dynamics
Difficulty
medium level question
Cognitive Level
understand
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