Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Yes, because the marginal product of labor exceeds the wage
B
No, because the marginal product of capital exceeds the price
C
Yes, because the ratios of marginal products to prices are equal
D
No, because the additional cost of labor will not increase profits
Understanding the Answer
Let's break down why this is correct
Answer
The firm should hire the extra worker because the worker’s marginal product is 30 units while the wage cost is only 10, so the marginal revenue product (30) exceeds the wage. This means the worker adds more value to the firm than it costs to employ them. The comparison with capital is irrelevant to the decision about hiring labor. Therefore, hiring the worker increases the firm’s profit.
Detailed Explanation
The firm hires when the extra output from one more worker, 30 units, is worth more than the worker’s cost, 10 dollars. Other options are incorrect because The decision to hire labor depends only on labor’s numbers, not on capital’s numbers; The rule is not about equal ratios.
Key Concepts
Profit Maximization
Resource Allocation
Marginal Analysis
Topic
Profit Maximization
Difficulty
hard level question
Cognitive Level
understand
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