Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information, we can say that
A)profits will be increased by hiring additional workers.
B)profits will be increased by hiring fewer workers.
C)marginal revenue product must exceed average revenue product.
D)the restaurant is maximizing profits.

Question

Quizplus · Accepted Answer

The restaurant is hiring labor to the point where the Marginal Resource Cost (MRC) of the last worker ($16) exceeds her Marginal Revenue Product (MRP) ($12). This means the cost of hiring the last worker is more than the revenue she brings in, suggesting that profits could be increased by hiring fewer workers, as the firm is currently not maximizing its profit by employing this worker.

Assume That a Restaurant Is Hiring Labor in an Amount