Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Firms will hire additional workers as long as the MRP exceeds the wage paid to each worker.
B
Firms will hire workers only when the labor market is in equilibrium.
C
The MRP is irrelevant to hiring decisions in competitive markets.
D
Firms prefer to hire workers regardless of the MRP to avoid losses.
Understanding the Answer
Let's break down why this is correct
Answer
In a competitive labor market, the marginal revenue product of labor (MRP) helps firms decide how many workers to hire by measuring the additional revenue generated from employing one more worker. If the MRP is higher than the wage paid to that worker, it means the firm will earn more money than it spends, making it beneficial to hire more workers. For example, if hiring an extra worker increases sales by $100, but the worker’s wage is only $80, the firm gains a profit of $20 from that hire. Conversely, if the MRP falls below the wage, the firm would lose money by hiring additional workers, so it would stop hiring. Thus, firms use MRP to balance the cost of labor with the revenue it can generate, ensuring they maximize their profits.
Detailed Explanation
Firms will hire more workers if the money they make from each worker is greater than what they pay them. Other options are incorrect because Some think hiring only happens when the job market is balanced; This idea suggests MRP doesn't matter, which is incorrect.
Key Concepts
input factor relationship
cost-benefit analysis
competitive markets
Topic
Marginal Revenue Product of Labor
Difficulty
hard level question
Cognitive Level
understand
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