If the firm hires to a point where the marginal expense of labor is greater than the marginal revenue product of labor,then
A) profits could be increased by increasing employment.
B) profits could be increased by reducing employment.
C) profits are maximized.
D) total cost must be greater than total revenue.

Question

Quizplus · Accepted Answer

When the marginal expense of labor exceeds the marginal revenue product of labor, it implies that each additional worker is adding less to revenue as compared to the cost incurred in hiring them. Therefore, reducing employment will decrease costs, which will help to increase profits. Conversely, increasing employment will lead to a further increase in the marginal expense of labor, which will lower profits. Thus, Option B is the best choice.

If the Firm Hires to a Point Where the Marginal