A competitive employer is using labor in such an amount that labor's MRP is $10 and its wage rate is $8. This firm
A)should hire more labor because this will increase profits.
B)should hire more labor, although this may either increase or decrease profits.
C)is currently hiring the profit-maximizing amount of labor.
D)is selling its product in an imperfectly competitive market.

Question

Quizplus · Accepted Answer

When the marginal revenue product (MRP) of labor is higher than the wage rate, hiring more labor will increase profits because each additional unit of labor adds more to revenue than it costs.

A Competitive Employer Is Using Labor in Such an Amount