Question

A firm should hire more labor when the marginal revenue product of labor:1)A)exceeds the wage rate.B)equals the wage rate.C)is less than the wage rate.D)Any of these can be true.E)None of these are true.

Answer 1

Answer:

A. Exceeds the wage

Explanation:

Generally speaking, hiring labor should continue till Marginal Revenue Product and wage rate becomes equal. But when marginal revenue product is greater than the wage rate,  the current workers are contributing to revenue and not cost which affects the profits greatly.

Therefore, the firm should ensure to hire additional workers.