Suppose output of a firm hiring workers in a competitive labor market increases by three units when an additional worker is hired.This firm will hire more laborers if the market price of its product is $4 and the wage rate is $9.[Hint: Marginal revenue product of a resource is equal to the product of marginal product of the resource and the marginal revenue of the firm.]

Question

Quizplus · Accepted Answer

The marginal revenue product (MRP) of labor can be calculated as MRP of labor = Marginal product of labor * Marginal revenue. Here, the given information is that the output increases by three units when an additional worker is hired. Hence the marginal product of labor is 3 units. The marginal revenue of the firm is given as $4. Therefore the MRP of labor is 3 * $4 = $12. If the wage rate is $9, which is less than MRP, the firm will hire more workers. Hence the statement is true.

Suppose Output of a Firm Hiring Workers in a Competitive