Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Hire if the marginal product of labor exceeds the wage paid to the worker.
B
Hire regardless of the marginal product as long as the total output increases.
C
Hire only if the marginal product of labor is equal to the average product.
D
Hire if the total cost of labor is less than the total revenue generated.
Understanding the Answer
Let's break down why this is correct
Answer
A firm should determine whether to hire an additional worker by looking at the concept of marginal product, which is the extra output produced by one more worker. The firm needs to compare the additional revenue generated by this extra output to the cost of hiring the worker. If the additional revenue, called marginal revenue, is greater than the cost of hiring the worker, then it makes sense to hire them. For example, if hiring a new worker increases production by 10 units, and those units can be sold for $100, while the worker costs $80 to hire, the firm should hire the worker because it gains $20 in profit. This analysis helps the firm make smart decisions about expanding its workforce to maximize profits.
Detailed Explanation
A firm should hire more workers if the extra output they create is greater than the cost of their wages. Other options are incorrect because Just increasing total output isn't enough; Hiring based on average product can be misleading.
Key Concepts
Marginal Product of Labor
Wage Determination
Cost-Benefit Analysis
Topic
Marginal Product Analysis
Difficulty
medium level question
Cognitive Level
understand
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