If MPL $\lt$ 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.

Question

If MPL  $\lt$ 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

The given inequality MPL F1F1F1S1F1F1F10 w means that the marginal product of labor (MPL) is less than the wage rate (w). This implies that the firm is paying more to hire a unit of labor than what it is able to generate in terms of output. Therefore, the firm should reduce its labor input to a level where MPL is equal to the wage rate (MPL F1F1F1S1F1F1F10 w). This would maximize the firm's profits by minimizing its labor costs while generating the maximum output possible with the given amount of capital. Hence, option B is the best choice.

If MPL <\lt< W, the Firm: A) Has the Optimal Amount of Labor

If MPL $\lt$ W, the Firm:
A) Has the Optimal Amount of Labor