Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Profit will decrease due to increased labor costs outweighing additional revenue.
B
Profit will increase because more workers lead to higher output.
C
Profit will remain unchanged as only one worker is hired.
D
Profit will decrease only if the market price of pencils drops.
Understanding the Answer
Let's break down why this is correct
Answer
If the Lead Mill Company hires an additional worker even when the Marginal Revenue Product of Labor (MRPL) is less than the Marginal Factor Cost (MFC), it will likely decrease the firm's profitability. This is because the cost of hiring the worker exceeds the additional revenue that the worker generates for the company. For example, if hiring the worker costs the company $100 but the worker only brings in $80 in revenue, the company loses $20. This loss means that the decision to hire the worker was not in the best interest of maximizing profits. Overall, hiring workers should only happen when the revenue they produce exceeds their cost, or the company risks reducing its overall profit.
Detailed Explanation
Hiring another worker when the cost of that worker is higher than the extra money they bring in will lower profits. Other options are incorrect because Some might think that more workers always mean more output; It's a common belief that hiring just one worker won't change profits.
Key Concepts
Profit Maximization in Labor Markets
Marginal Revenue Product of Labor (MRPL)
Marginal Factor Cost (MFC)
Topic
Profit Maximization in Labor Markets
Difficulty
medium level question
Cognitive Level
understand
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