Walter's Wheat Farm sells its output and hires its labour in perfectly competitive markets. In the short run, Walter can vary only one input, labour. When Walter is producing in short-run equilibrium, all of the following conditions, except one, will necessarily be satisfied. Which is the exception?

Question

Quizplus · Accepted Answer

This statement is incorrect. In the short run, the firm's total revenue will increase as more labour is hired, until the point where the value of the marginal product of labour equals the wage rate. This is because each additional unit of labour will produce more output than the previous unit, and as long as the marginal product of labour is greater than the wage rate, hiring more labour will increase total revenue.

Walter's Wheat Farm Sells Its Output and Hires Its Labour