A firm operating in a purely competitive labor market has the marginal revenue product schedule shown in the table. $\begin{array}{l}

\begin{array} { | c | c | }
\hline\text { Warkers}& \text {MRP }\
\hline 1 & \$ 24 \
\hline 2 & 22 \
\hline 3 & 20 \
\hline 4 & 18 \
\hline 5 & 16 \
\hline 6 & 14 \
\hline 7 & 12 \
\hline
\end{array}
\end{array}$ If the wage rate decreases from $17 to $13, by how much will the firm expand employment?
A) 5 workers
B) 4 workers
C) 3 workers
D) 2 workers

Question

A firm operating in a purely competitive labor market has the marginal revenue product schedule shown in the table. $\begin{array}{l}

\begin{array} { | c | c | } 
\hline\text { Warkers}& \text {MRP }\
\hline 1 & \$ 24 \
\hline 2 & 22 \
\hline 3 & 20 \
\hline 4 & 18 \
\hline 5 & 16 \
\hline 6 & 14 \
\hline 7 & 12 \
\hline
\end{array}
\end{array}$ If the wage rate decreases from $17 to $13, by how much will the firm expand employment?
A) 5 workers
B) 4 workers
C) 3 workers
D) 2 workers

Quizplus · Accepted Answer

The firm will hire workers until the marginal revenue product (MRP) equals the wage rate. At a wage rate of $17, the firm hires 4 workers (MRP = $18). When the wage rate decreases to $13, the firm hires 6 workers (MRP = $14). Thus, the firm expands employment by 2 workers.

A Firm Operating in a Purely Competitive Labor Market Has