Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They will maximize profits by hiring more workers.
B
They will incur losses due to higher labor costs than revenue.
C
They will maintain the same number of employees.
D
They will reduce wages to increase profitability.
Understanding the Answer
Let's break down why this is correct
Answer
If Pride Textiles pays a wage that is higher than the marginal revenue product of labor, the firm will likely face financial difficulties. The marginal revenue product of labor is the additional money the firm earns from hiring one more worker. When wages exceed this amount, the company is spending more on labor than it is earning from the work that labor produces. For example, if a worker generates $50 in revenue but is paid $60, the company loses $10 for that worker. Over time, this situation can lead to reduced profits and might cause the firm to cut costs, which could include laying off workers or reducing wages.
Detailed Explanation
When a company pays more than what workers bring in, it loses money. Other options are incorrect because Some might think paying more means hiring more workers will help; It may seem like keeping the same number of workers is safe.
Key Concepts
Marginal Product of Labor
Marginal Factor Cost
Perfectly Competitive Labor Market
Topic
Marginal Product and Labor Costs
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.