Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Calculate the marginal revenue product of the worker.
B
Compare the marginal revenue product to the marginal factor cost.
C
Hire the worker if the marginal revenue product exceeds the marginal factor cost.
D
Analyze the current profit levels before hiring.
Understanding the Answer
Let's break down why this is correct
Answer
To determine if hiring an additional worker will increase profit for a firm, start by calculating the marginal revenue, which is the extra money the firm makes from selling more products due to the new worker. Next, determine the marginal cost, which is the additional cost of hiring that worker, including wages and any other expenses. Compare the marginal revenue to the marginal cost: if the marginal revenue is greater than the marginal cost, hiring the worker will likely increase profit. For example, if hiring a new worker leads to an extra $500 in sales but costs $400 in wages, the firm would gain an additional $100 in profit. By following these steps, the firm can make informed decisions about expanding its workforce.
Detailed Explanation
First, you need to find out how much extra money the new worker can bring in. Other options are incorrect because Some might think you should compare costs before knowing the extra money the worker can make; It's easy to think you can just hire if the extra money seems higher than costs.
Key Concepts
Marginal Revenue Product
Marginal Factor Cost
Profit Maximization
Topic
Marginal Revenue and Profit Calculations
Difficulty
medium level question
Cognitive Level
understand
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