Suppose that firms are operating at a point where marginal product of labor = 20,the nominal wage is $60,and the price level is $4.Because the real wage is ________ than the marginal product of labor,firms are hiring ________ workers.
A)less,too few
B)less,too many
C)greater,too few
D)greater,too many

Question

Quizplus · Accepted Answer

The real wage is calculated as the nominal wage divided by the price level, which is $60 / $4 = $15. Since the marginal product of labor is 20, which is greater than the real wage of $15, the real wage is less than the marginal product of labor. This means firms are hiring too few workers because it is cost-effective for them to hire more workers until the marginal product of labor equals the real wage.

Suppose That Firms Are Operating at a Point Where Marginal