Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased profits due to higher output
B
Decreased profits due to rising labor costs
C
No change in profits as output remains constant
D
Optimal utilization of labor resources
Understanding the Answer
Let's break down why this is correct
Answer
If Lead Mill keeps hiring workers after the point where the Marginal Revenue Product of Labor (MRPL) equals the Marginal Factor Cost (MFC), it will end up losing money. MRPL represents the additional revenue generated by hiring one more worker, while MFC is the cost of hiring that worker. When MRPL is higher than MFC, the company is making a profit from the extra worker, but if it continues hiring beyond the balance point, the cost of hiring will exceed the revenue produced. For example, if hiring the fifth worker costs $100 but only generates $80 in additional revenue, the company is losing $20 for that worker. Therefore, hiring beyond this point will reduce overall profits and could lead to financial problems.
Detailed Explanation
When a company hires too many workers, the cost of paying them goes up. Other options are incorrect because Some might think more workers always mean more profits; It's a common belief that hiring more workers won't change profits.
Key Concepts
Marginal Revenue Product of Labor (MRPL)
Marginal Factor Cost (MFC)
Profit Maximization
Topic
Profit Maximization in Labor Markets
Difficulty
hard level question
Cognitive Level
understand
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