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Marginal Revenue Product of Labor
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A firm is evaluating the impact of hiring an additional worker. Which of the following scenarios best illustrates the concept of Marginal Revenue Product of Labor (MRPL)?

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Choose the Best Answer

A

The firm finds that hiring one more worker increases total revenue by $500, while the marginal product of labor for that worker is 10 units of output, leading to a calculated MRPL of $50.

B

The firm observes that additional workers are diminishing returns, leading to a decrease in overall productivity and a lower total revenue despite increased hiring.

C

The firm finds that the cost of hiring an additional worker is $300, but the additional output generated by that worker does not change total revenue.

D

The firm calculates that the marginal revenue remains constant regardless of the number of workers hired, indicating MRPL is not influenced by labor inputs.

Understanding the Answer

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Answer

Marginal Revenue Product of Labor (MRPL) is the additional revenue a firm earns by hiring one more worker. For example, imagine a bakery that currently has five workers making 100 loaves of bread each day, earning $2 per loaf, which gives them $200 in total revenue. If the bakery hires one more worker and that worker helps produce an additional 20 loaves, the bakery can now sell 120 loaves for $240. The MRPL of the new worker is the extra revenue generated, which in this case is $40, calculated by taking the additional revenue ($240) and subtracting the original revenue ($200). This concept helps firms decide if hiring more workers is worth it based on how much extra money they can make.

Detailed Explanation

This option shows how hiring one more worker increases total revenue by $500. Other options are incorrect because This option suggests that hiring more workers leads to less productivity; This option implies that hiring a worker does not change total revenue.

Key Concepts

Marginal Revenue Product of Labor
Diminishing Returns
Optimal Hiring Levels
Topic

Marginal Revenue Product of Labor

Difficulty

medium level question

Cognitive Level

understand

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