The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
FIGURE 13- 2
-Refer to Figure 13- 2.Suppose this firm is facing MRP1,a wage rate of $12 per hour and is employing 150 units of labour.At this level of employment,
A)the last unit of labour contributes as much to the firm's costs as to the firm's revenues and so the firm should not change its use of labour.
B)the last unit of labour is adding less to the firm's cost than it is adding to the firm's revenue,so it should increase the use of labour.
C)the firm has shifted the MRP curve to MRP2.
D)the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue,so it should reduce the use of labour.
E)the firm has shifted the MRP curve to MRP3.

Question

The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
  FIGURE 13- 2
-Refer to Figure 13- 2.Suppose this firm is facing MRP1,a wage rate of $12 per hour and is employing 150 units of labour.At this level of employment,
A)the last unit of labour contributes as much to the firm's costs as to the firm's revenues and so the firm should not change its use of labour. 
B)the last unit of labour is adding less to the firm's cost than it is adding to the firm's revenue,so it should increase the use of labour. 
C)the firm has shifted the MRP curve to MRP2. 
D)the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue,so it should reduce the use of labour. 
E)the firm has shifted the MRP curve to MRP3.

Quizplus · Accepted Answer

At 150 units of labour, the MRP curve intersects with the wage rate of $12 per hour at MRP1. At this point, the last unit of labour added is contributing less to the firm's revenue ($20) than it is to the firm's cost ($24), indicating that the firm should reduce its use of labour. Therefore, the best choice is D. The other options are incorrect because they do not accurately reflect the situation depicted in the diagram.

The Diagram Below Shows the MRP Curve for a Firm