The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor

-If the ratio of marginal revenue product to marginal factor cost for labor is greater than that for capital, then:
A)the producer can maximize profit by hiring more units of capital.
B)the producer suffers losses by hiring more units of labor.
C)the producer does not alter the resource allocation.
D)the producer can maximize profit by hiring more units of labor.
E)the producer will earn above normal profit by hiring less units of labor.

Question

The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor
 
-If the ratio of marginal revenue product to marginal factor cost for labor is greater than that for capital, then:
A)the producer can maximize profit by hiring more units of capital. 
B)the producer suffers losses by hiring more units of labor. 
C)the producer does not alter the resource allocation. 
D)the producer can maximize profit by hiring more units of labor. 
E)the producer will earn above normal profit by hiring less units of labor.

Quizplus · Accepted Answer

If the ratio of marginal revenue product to marginal factor cost for labor is greater than that for capital, it means that the producer can generate more revenue per unit of labor cost compared to the cost of capital. Therefore, the producer can maximize profit by hiring more units of labor. This is because each additional unit of labor hired will increase revenue more than the increase in cost, leading to higher profit.

The Figure Given Below Represents Equilibrium in the Labor Market