Suppose the current market wage rate (w)is $4.In the short run,a firm's marginal cost at the current output level is $2.What is this firm's marginal product of labor?

Question

Quizplus · Accepted Answer

In the short run, a firm's profit maximizing rule is to hire labor up to the point where the value of the marginal product of labor (MPL) equals the wage rate, i.e. MPL = w. In this case, since the wage rate is $4 and the marginal cost of labor is $2, the firm would hire labor up to the point where MPL = $4. Therefore, MPL = w / MC = $4 / $2 = 2. Hence, the correct answer is C, i.e. MP_L = 2.

Suppose the Current Market Wage Rate (W)is $4