-The above figure shows a competitive firm's demand for labor assuming that the firm's output sells for $1 per unit.If the wage is $5 per hour,the firm will hire
A) 10 units of labor per hour.
B) 5 units of labor per hour.
C) 2.5 units of labor per hour.
D) 0 units of labor per hour.

Question

-The above figure shows a competitive firm's demand for labor assuming that the firm's output sells for $1 per unit.If the wage is $5 per hour,the firm will hire
A) 10 units of labor per hour. 
B) 5 units of labor per hour. 
C) 2.5 units of labor per hour. 
D) 0 units of labor per hour.

Quizplus · Accepted Answer

The firm will hire labor up to the point where the marginal revenue product (MRP) of labor equals the wage rate. If the wage is $5 per hour, the firm will hire the amount of labor where the MRP, which is the additional revenue the firm earns from hiring an additional unit of labor, equals $5. This is typically represented on a graph where the MRP curve intersects the wage line. Without the graph, assuming a standard downward-sloping MRP curve, the firm hires the number of labor units that equates the wage with the MRP. Given the choices, 5 units of labor per hour is a plausible scenario for a wage of $5, assuming the MRP of the 5th unit of labor is $5.

-The Above Figure Shows a Competitive Firm's Demand for Labor