Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Hire the worker because MRP exceeds MFC, maximizing profit.
B
Do not hire the worker because MRP is lower than MFC, reducing profit.
C
Hire the worker to decrease overall production costs.
D
Do not hire the worker as it will lead to diminishing returns immediately.
Understanding the Answer
Let's break down why this is correct
Answer
The firm should decide to hire the additional worker because the marginal revenue product (MRP) is greater than the marginal factor cost (MFC). The MRP of $30 means that the new worker is expected to generate $30 in revenue for the firm. On the other hand, the MFC of $25 is the cost of hiring that worker. Since $30 is higher than $25, the firm will make a profit of $5 for each additional worker hired. For example, if the firm hires one more worker, it will earn $30 but only pay $25, resulting in a clear financial benefit.
Detailed Explanation
The firm should hire the worker. Other options are incorrect because This option suggests that the worker costs more than they earn; Hiring a worker does not directly lower production costs.
Key Concepts
Marginal Revenue Product (MRP)
Marginal Factor Cost (MFC)
Labor Demand
Topic
Marginal Revenue Product Analysis
Difficulty
hard level question
Cognitive Level
understand
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