The diagram below shows the MRP curve for a firm producing high school math textbooks. The factor of production being considered here is hours of labour. FIGURE 13- 2
-Refer to Figure 13- 2. Suppose this firm is facing MRP1, a wage rate of $12 per hour and is employing 150 units of labour. At this level of employment,
A) the last unit of labour contributes as much to the firm's costs as to the firm's revenues and so the firm should not change its use of labour.
B) the firm has shifted the MRP curve to MRP3.
C) the firm has shifted the MRP curve to MRP2.
D) the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue, so it should reduce the use of labour.
E) the last unit of labour is adding less to the firm's cost than it is adding to the firm's revenue, so it should increase the use of labour.

Question

The diagram below shows the MRP curve for a firm producing high school math textbooks. The factor of production being considered here is hours of labour.  FIGURE 13- 2
-Refer to Figure 13- 2. Suppose this firm is facing MRP1, a wage rate of $12 per hour and is employing 150 units of labour. At this level of employment,
A) the last unit of labour contributes as much to the firm's costs as to the firm's revenues and so the firm should not change its use of labour. 
B) the firm has shifted the MRP curve to MRP3. 
C) the firm has shifted the MRP curve to MRP2. 
D) the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue, so it should reduce the use of labour. 
E) the last unit of labour is adding less to the firm's cost than it is adding to the firm's revenue, so it should increase the use of labour.

Quizplus · Accepted Answer

At MRP1, the firm is employing 150 units of labour where the MRP curve intersects with the wage rate of $12. At this level of employment, the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue, so it should reduce the use of labour, as indicated by the downward-sloping MRP curve. Therefore, option D is the correct choice.

The Diagram Below Shows the MRP Curve for a Firm