The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
FIGURE 13-1
-Refer to Figure 13-1.Suppose this firm is facing MRP1,a wage rate of $16 per hour and is employing 100 units of labour.At this level of employment,
A)the last unit of labour is adding less to the firmʹs cost than it is adding to the firmʹs revenue,so it should increase the use of labour.
B)the last unit of labour contributes as much to the firmʹs costs as to the firmʹs revenues and so the firm should not change its use of labour.
C)the last unit of labour is adding more to the firmʹs cost than it is adding to the firmʹs revenue,so it should reduce the use of labour.
D)the firm has shifted the MRP curve to MRP2.
E)the firm has shifted the MRP curve to MRP3.

Question

The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
  FIGURE 13-1
-Refer to Figure 13-1.Suppose this firm is facing MRP1,a wage rate of $16 per hour and is employing 100 units of labour.At this level of employment,
A)the last unit of labour is adding less to the firmʹs cost than it is adding to the firmʹs revenue,so it should increase the use of labour. 
B)the last unit of labour contributes as much to the firmʹs costs as to the firmʹs revenues and so the firm should not change its use of labour. 
C)the last unit of labour is adding more to the firmʹs cost than it is adding to the firmʹs revenue,so it should reduce the use of labour. 
D)the firm has shifted the MRP curve to MRP2. 
E)the firm has shifted the MRP curve to MRP3.

Quizplus · Accepted Answer

If the firm is facing MRP1 and the wage rate is $16 per hour, employing 100 units of labor where the last unit of labor adds less to the firm's cost than it is adding to the firm's revenue, it indicates that the marginal revenue product (MRP) of the last unit of labor is higher than the wage rate. Therefore, the firm can increase its profit by employing more labor until the MRP equals the wage rate.

The Diagram Below Shows the MRP Curve for a Firm