Question

When wage is greater than marginal revenue hiring an additional unit of labor will result in a reduction in profit or an increase in loss. True or false

Answer 1

True.

• Marginal revenue product of labour can be used to measure the marginal revenue gained from hiring an additional unit of labour.
• According to the concept of marginal revenue product of labour, firms will hire additional unit of labour until the point where the marginal revenue equals the wage rate. This is because, the firms earn enough profit at this point.
• But when the wage exceeds the marginal revenue, the firms will incur losses due to reduced profits when there hire additional units of labour at this point.