Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Profit will decrease because the cost of hiring exceeds the revenue generated.
B
Profit will increase as the firm utilizes more labor.
C
Profit will remain unchanged as costs and revenues balance out.
D
Profit will fluctuate based on market demand regardless of labor hired.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm hires an additional worker, it expects that worker to help generate more revenue. Marginal revenue is the extra money the firm makes from that worker, while marginal cost is the extra money the firm spends to hire that worker. If the marginal revenue is less than the marginal cost, it means the firm is spending more on hiring than it is making from the extra work. This situation will likely decrease the firm's profit because the costs are higher than the benefits. For example, if hiring a worker costs $1,000 but only brings in $800 in revenue, the firm loses $200, which negatively impacts its overall profit.
Detailed Explanation
When the cost of hiring a worker is higher than the money they bring in, the firm loses money. Other options are incorrect because Some might think that hiring more workers always helps profit; It's a common mistake to think costs and revenues always balance out.
Key Concepts
Marginal Revenue
Marginal Cost
Profit Maximization
Topic
Marginal Revenue and Profit Calculations
Difficulty
easy level question
Cognitive Level
understand
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