Question

What happens if marginal revenue is negative?

A. Total revenue will fall if another unit is sold

B. Total revenue increases by a small amount if another unit is sold

C. The price of a unit is negative

D. Total revenue increases by a falling amount if more units are sold

What does marginal product of labour measure?

A. Total output/number of employees

B. Total output per worker

C. The extra output produced when you hire another employee

D. The total output of employees

Answer 1

A) Marginal Revenue means the amount of revenue a firm will make when producing the next unit of output.

When MR = 0, the firm is revenue maximising, so making as much revenue as possible. Before you get to that point, each new good being produced results in an increase to revenue. But after this point MR become negative  However, , producing another good will lead to a fall in revenue.I.e: Imagine when the firm is Revenue maximising and making £40. The Marginal revenue is £0. However, if they keep increasing output MR may equal £-3 and so producing another unit of output will mean the firm makes £37 revenue.

Hence (A) part is a correct answer

B) The marginal product of labor represents the increased volume of goods produced by each added unit of labor. If ten employees produce 100 products each day and an 11th brings the total produced to 110, the marginal product of labor of that employee would be 10 per day.

Hence (C) part is a correct answer