Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The firm will hire more workers to maximize profit.
B
The firm will reduce its workforce to cut costs.
C
The firm will maintain its current workforce size.
D
The firm will only hire if the MRP equals the wage rate.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm's marginal revenue product (MRP) from hiring an additional worker is greater than the wage rate, it means that the extra money the firm makes from that worker is more than what they pay them. This situation encourages the firm to hire more workers because it can increase its profits. For example, if a worker generates $100 in revenue but costs the firm only $80 in wages, the firm gains an extra $20 for every worker hired. As a result, the firm will likely continue to hire until the MRP equals the wage rate, maximizing its profit. In summary, a higher MRP compared to the wage rate signals the firm to expand its workforce.
Detailed Explanation
When the extra money made from hiring a worker is more than what you pay them, it makes sense to hire more. Other options are incorrect because Some might think cutting workers saves money; Keeping the same number of workers might seem safe, but it misses out on profit.
Key Concepts
Marginal Revenue Product
Profit Maximization
Labor Demand
Topic
Marginal Analysis in Hiring
Difficulty
medium level question
Cognitive Level
understand
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