If the firm's marginal physical product is 8, and its handicrafts sell for $70, when a unit of labor costs $150, the firm is operating
A)short of an optimal input point.
B)at the optimum input point.
C)beyond the optimum input point.
D)There isn't enough information to determine if the input point is optimal.

Question

Quizplus · Accepted Answer

The firm's marginal revenue product (MRP) can be calculated by multiplying marginal physical product (MPP) by price. 
MRP = MPP x Price = 8 x $70 = $560
If a unit of labor costs $150, the firm should only hire labor if the MRP from that labor is greater than or equal to $150. 
Since MRP is only $560 and the cost of labor is $150, the firm is not at an optimal input point and should reduce the amount of labor used in production. Therefore, choice A is correct.

If the Firm's Marginal Physical Product Is 8, and Its