Suppose a competitive firm produces 100 units of X for a price of $10 a unit.The firm employs labor such that the marginal product of labor is 20.The wage paid for one unit of labor is $60.Given that capital is kept fixed,the firm _____.
A)is in equilibrium
B)is suffering an economic loss
C)should increase production
D)should reduce output

Question

Quizplus · Accepted Answer

The firm should increase production because the marginal revenue product of labor (MRPL = Price × Marginal Product of Labor = $10 × 20 = $200) is greater than the wage rate ($60). This indicates that the additional output produced by hiring more labor generates more revenue than the cost of the labor, suggesting that increasing production would be profitable.

Suppose a Competitive Firm Produces 100 Units of X for a Price