Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
MRP must equal the wage rate for profit maximization
B
MRP should always be greater than the total revenue
C
MRP is irrelevant in competitive markets
D
MRP decreases with each additional worker hired
Understanding the Answer
Let's break down why this is correct
Answer
In a competitive market, the Marginal Revenue Product of Labor (MRP) is a key concept that helps firms decide how many workers to hire. MRP measures the additional revenue generated from hiring one more worker. A firm will continue to hire more workers as long as the MRP of each new worker is greater than or equal to the wage paid to them. For example, if hiring an additional worker brings in $100 in revenue but costs $80 in wages, it makes sense for the firm to hire that worker. However, if the MRP drops below the wage, the firm should stop hiring to maximize profits.
Detailed Explanation
Firms should hire workers until the extra money they make from one more worker equals what they pay that worker. Other options are incorrect because Some might think MRP needs to be higher than total revenue; It's a common mistake to think MRP doesn't matter in competitive markets.
Key Concepts
input factor relationship
competitive markets
Topic
Marginal Revenue Product of Labor
Difficulty
medium level question
Cognitive Level
understand
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