A company finds that the value of marginal product for the current level of employment is $53 and the wage rate is $45.Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the profit-maximizing amount of labor.

Question

Quizplus · Accepted Answer

The value of marginal product (VMP) is the additional revenue a firm earns by employing one more unit of labor. If the VMP ($53) is higher than the wage rate ($45), it means that each additional worker is generating more revenue than their cost, suggesting that the firm can increase profits by hiring more workers.

A Company Finds That the Value of Marginal Product for the Current