If the marginal revenue product (MPR) of labor is less than the wage rate:?

Question

A. the firm is making profits
B. the firm is incurring losses
C. more labor should be employed
D. less labor should be employed

please answer and explain ty =]

Answer 1

D. MPR should equal wage, and MPR tends to decrease as you add more labor (given same capital)

Think of your favorite "pretty boys" music band. If there were only 2 boys in it, adding a 3d would probably make a band much more popular, and increased revenues will cover the costs of hiring that 3d boy.

If there were already 7 boys in a band, firing one of them would probably not reduce the quality of the band much, but would save quite a bit of money.

PS B. is wrong b/c you can still make a profit with more ppl than you need. MPR

Answer 2

The smaller your marginal revenue product i guess the lower your demand for labour, however the demand for labour cant stop after the first worker (he has the highest marginal revenue product) because then he would have to pay a fortune for an output that is quite low. So as a result because the wages paid to workers equal to the marginal revenue product of the last worker hired there is a point where marginal revenue product is low enough to justify paying a specific wage to all employees.

Answer 3

The marginal revenue product is the difference in revenue that the firm gets from using one additional unit of labor.

The wage rate is the price of one unit of labor.

What does this say about whether or not the firm should employ more or less labor?

Answer 4

B: if labor is costing more than marginal revenue you have a lost and you are loosing money. To correct it you should fine out why your labor is costing so much. could be to many workers this means reduce the work force. it also could mean your work force is not well enough trained, or your not getting the raw materials they need to them fast enough, or not moving the finest goods off the floor in a timely manor. your machinery is out dated or in need of repair causing to much down time. OR your a loosey manager!

Answer 5

Less labour should be employed. As you reduce one unit of labour, you save the wage cost but lose the MRP of labour. So your rvenue goes down by less than what your costs go down. Since costs go down more than does the revenue contributed by marginal labour removed from employment, your profit increases. Let us say each baourer gets $30 oer day. The latest unit of labour gives a MRP of $ 25. Thus by reducing the labour by one unit you make a net profit of $5.