If a competitive firm hires workers to a point where the wage exceeds the MVP_L: A)reducing the level of employment will increase profits. B)the wage rate needs to be increased to maximize profits. C)the total cost must be greater than total revenue. D)the firm is maximizing its profits.

Question

Quizplus · Accepted Answer

If the wage paid by the firm exceeds the marginal value product of the last worker hired, it means that the firm is paying more than what it is receiving in return. This situation leads to a decrease in profits. Therefore, reducing the level of employment by firing one or more workers will increase profits because it will reduce the wage bill without significantly affecting total output.

If a Competitive Firm Hires Workers to a Point Where