Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The MRPL must be greater than the wage of the new baker for hiring to be beneficial.
B
The bakery should hire the new baker regardless of the MRPL since more labor always increases output.
C
The owner should only consider the fixed costs associated with hiring a new baker.
D
The marginal revenue of each loaf will decrease if more bakers are hired, making hiring unnecessary.
Understanding the Answer
Let's break down why this is correct
Answer
The bakery owner should look at the Marginal Revenue Product of Labor (MRPL) to decide if hiring the third baker is a good idea. The MRPL measures how much additional revenue the bakery would earn from hiring one more worker. In this case, if the third baker increases production by 30 loaves, and each loaf brings in $5, the total additional revenue would be 30 loaves times $5, which equals $150. The owner should compare this $150 to the cost of hiring the new baker; if the cost is less than $150, it would be a smart decision to hire the new baker since it would increase profits. If the cost is higher, then the owner might want to reconsider.
Detailed Explanation
The MRPL shows how much extra money each new baker brings in. Other options are incorrect because This idea assumes that more workers always mean more bread; Focusing only on fixed costs ignores how much money the new baker can make.
Key Concepts
Marginal Revenue Product of Labor
Wage Determination
Perfect Competition
Topic
Marginal Revenue Product of Labor
Difficulty
medium level question
Cognitive Level
understand
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