Exhibit 11-5 A perfectly competitive labor market

In Exhibit 11-5, when the marginal revenue product is $20.00, firms should

Question

Exhibit 11-5 A perfectly competitive labor market

In Exhibit 11-5, when the marginal revenue product is $20.00, firms should

Quizplus · Accepted Answer

When the marginal revenue product (MRP) is greater than or equal to the wage rate (in this case, $20.00 is greater than $15.00), firms should continue hiring workers as long as the marginal cost of hiring the last worker (i.e. the wage rate) is less than or equal to the MRP. This is because each additional worker adds more to total production than they cost to hire, which increases profits. Therefore, firms should not stop hiring workers or start firing workers, and there is no indication that they should pay a wage above $15.00 in this scenario.

Exhibit 11-5 a Perfectly Competitive Labor Market