If MPL

Name: If MPL < w, the firm: A) has the optimal amount of labor B) should fire some labor until MPL = w C) should fire some labor until MPL = 0 D) should hire more capital until MPK = 0 E) should hire more capital until MPL = w
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Question

If MPL < w, the firm:
A) has the optimal amount of labor
B) should fire some labor until MPL = w
C) should fire some labor until MPL = 0
D) should hire more capital until MPK = 0
E) should hire more capital until MPL = w

Quizplus · Accepted Answer

If the marginal product of labor (MPL) is less than the wage rate (w), the firm is paying more for labor than the value it is generating. Therefore, the firm should reduce its labor force until MPL equals the wage rate to optimize labor costs.

If MPL < W, the Firm