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Chapter 26: Problem 12

If the MRP of the last worker hired is lower than the wage rate, the firm has \((\mathrm{LO3})\) a) hired too many workers b) hired too few workers c) hired the right number of workers

Short Answer

Expert verified
In summary, when the MRP of the last worker hired is lower than the wage rate, the firm has hired too many workers, as the cost of hiring that worker is higher than the revenue generated by them. To maximize profit, the firm should optimize its workforce by reducing the number of workers hired.

Step by step solution

01

Define Marginal Revenue Product (MRP)

Marginal Revenue Product is the additional revenue a firm can generate by hiring one extra unit of labor (worker). It can be calculated by multiplying the marginal product of labor (MPL) with the marginal revenue (MR) generated from the sale of the good produced by that extra labor.
02

Understand the relationship between MRP and the number of workers

A profit-maximizing firm will hire workers up to the point where the MRP of the last worker hired is equal to the wage rate. If the MRP is higher than the wage rate, the firm can increase its profit by hiring more workers. Conversely, if the MRP is lower than the wage rate, the firm is not maximizing its profit, and it should reduce the number of hired workers. Now, let's apply this understanding to answer the given question.
03

Analyze the given information

According to the given exercise, the MRP of the last worker hired is lower than the wage rate. This means that the cost of hiring that particular worker (wage rate) is higher than the revenue generated by that worker (MRP).
04

Determine the optimal number of workers

Since the MRP of the last worker hired is lower than the wage rate, it indicates that the firm is currently not maximizing its profit. To maximize profit, the firm should optimize its workforce. In this case, the firm has hired too many workers, and as a result, the answer to the question is: a) hired too many workers

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Most popular questions from this chapter

The added output for which one additional input of labor is responsible is its (LO3) a) marginal revenue product b) marginal physical product c) average revenue product d) average physical product

When the demand for wheat rises, the demand for farm labor (LOl) a) rises b) falls c) may rise or fall

If the price that a perfect competitor receives for her final product doubles, the firm's MRP schedule will (LO3) a) rise c) double at each price b) fall d) stay about the same

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