Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The firm is not fully utilizing its capital resources.
B
The firm is paying its workers above-market wages.
C
The demand for the firm's product has increased, leading to higher MRP of labor.
D
The firm's production process is inefficient, causing high labor costs.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm discovers that the marginal revenue product of labor is much higher than the wage it pays, it usually means that the workers are producing a lot of value for the company compared to what they are being paid. This situation often arises because the firm might be experiencing high demand for its products, leading to increased sales and profits. For example, if a bakery hires an extra baker who can produce many more loaves of bread that sell well, the extra profit generated by the new baker exceeds the cost of their salary. This difference indicates that the firm has room to either increase wages or hire more workers to maximize profits. Therefore, the high marginal revenue product suggests that the firm is not fully utilizing its labor resources efficiently.
Detailed Explanation
When demand for a product goes up, companies need more workers to produce it. Other options are incorrect because Some might think that not using all resources means workers are less valuable; It's a common mistake to think paying more means workers are more valuable.
Key Concepts
Marginal Revenue Product of Labor
Resource Allocation
Profit Maximization
Topic
Resource Allocation for Profit Maximization
Difficulty
medium level question
Cognitive Level
understand
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