If the wage rate is greater than the marginal revenue product of labor, the firm should ________ to maximize profits.
A) hire less labor and produce less output
B) hire less labor and produce more output
C) hire more labor and produce less output
D) hire more labor and produce more output

Question

Quizplus · Accepted Answer

When the wage rate exceeds the marginal revenue product of labor, it means the cost of hiring an additional unit of labor is more than the revenue that unit brings in. To maximize profits, the firm should reduce its labor costs by hiring less labor, which typically results in producing less output.

If the Wage Rate Is Greater Than the Marginal Revenue