If a firm increases its input of labor and observes an increase in marginal revenue, what does this indicate about the firm's production decisions?

When a firm increases its input of labor and sees an increase in marginal revenue, it suggests that adding more workers is helping the firm produce more goods or services that are in demand. This means that each additional worker is contributing positively to the firm’s output and is likely generating more sales. For example, if a bakery hires an extra baker and that results in more bread being made and sold, the bakery earns more revenue from those additional sales. This situation indicates that the firm is in a good position to benefit from hiring more labor, as it shows that their production decisions are effective and profitable. Overall, it reflects that the firm is experiencing increasing returns to labor, where each new worker adds more value than the cost of hiring them.