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Chapter 14: Problem 13

If the wage rate is higher than the MRP of the last worker hired, (LO3) a) the firm might be able to profitably hire at least one more worker b) the firm has already hired too many workers c) there is no way of knowing whether the firm has too few or too many workers

Short Answer

Expert verified
The firm has already hired too many workers.

Step by step solution

01

Understanding the concepts of wage rate and marginal revenue product

Wage rate is the amount of compensation a worker receives for a unit of labor, e.g., per hour or per day. Marginal revenue product (MRP) is the additional revenue that a firm gains by employing an additional unit of labor. In an ideal situation, a firm will keep on hiring more workers until the wage rate (cost of labor) equals the MRP, maximizing profit.
02

Analyzing the given situation

We are given that the wage rate is higher than the MRP of the last worker hired. So, the cost of the last worker is higher than his contribution to the firm's revenue. As a result, the firm is not maximizing its profit.
03

Determining the firm's situation based on the relationship between wage rate and MRP

Since the wage rate is higher than the MRP of the last worker hired: a) Hiring additional workers will not be profitable because their MRP would be even less than that of the last worker, and paying them the same wage rate would only reduce profits further. b) The firm has likely hired too many workers because the expense of paying for the last worker's wage rate outweighs their contribution to the total revenue. Reducing the number of workers to a point where their MRP equals the wage rate could increase profitability. c) This option can be ruled out, as it contradicts our prior analysis of the given scenario. Based on the analysis, the correct answer is: b) The firm has already hired too many workers.

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Most popular questions from this chapter

The most effective way to increase the productivity of labor would be to (LO4) a) increase capital b) increase labor c) lower capital d) shift workers from white-collar work to bluecollar work

The most important influence on a firm's demand for a factor of production is (LO4) a) the quantities of other resources b) the prices of other resources c) its productivity d) the demand for the final product

When the demand for wheat rises, the demand for farm labor (LO1) a) rises b) falls c) may rise or fall

Relative to the Chinese economy, the U.S. economy is (LO2) a) more capital intensive b) more labor intensive c) more labor intensive and more capital intensive d) less labor intensive and less capital intensive

Which statement is true? (LO2) a) Productivity is output per unit of input. b) Productivity is input per unit of output. c) Productivity is neither of the above.
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