Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
marginal profit
B
total revenue
C
marginal cost
D
fixed costs
Understanding the Answer
Let's break down why this is correct
Answer
When a firm hires an additional worker, it looks at two important ideas: the marginal revenue product (MRP) and the marginal factor cost (MFC). The marginal revenue product is the extra money the firm makes from hiring one more worker, while the marginal factor cost is how much it costs to pay that worker. If the MRP is greater than the MFC, it means the additional worker is bringing in more money than they cost, which is a good situation for the firm. As a result, the firm is likely to experience an increase in profit because they are making more money than they are spending. For example, if hiring a new worker costs $20 an hour but they help bring in $30 an hour in sales, the firm benefits from that extra $10, leading to higher overall profits.
Detailed Explanation
When the extra money made from hiring a worker is more than what it costs to hire them, the firm earns more profit. Other options are incorrect because Some might think total revenue will always go up with more workers; People might confuse costs with profits.
Key Concepts
Marginal Revenue Product
Marginal Factor Cost
Marginal Profit
Topic
Marginal Revenue and Profit Calculations
Difficulty
easy level question
Cognitive Level
understand
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