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 profit- maximizing firm is facing MRP1 and a wage rate of $12 per hour.Now suppose there is,simultaneously,an increase in demand for copper plumbing pipe (such that MRP shifts to MRP2),and an increase in the wage rate to $16 per hour.The firm should
A)employ 20 more units of labour.
B)employ 40 more units of labour.
C)employ the same number of units of labour.
D)employ 20 fewer units of labour.
E)employ 40 fewer units of labour

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 profit- maximizing firm is facing MRP1 and a wage rate of $12 per hour.Now suppose there is,simultaneously,an increase in demand for copper plumbing pipe (such that MRP shifts to MRP2),and an increase in the wage rate to $16 per hour.The firm should
A)employ 20 more units of labour. 
B)employ 40 more units of labour. 
C)employ the same number of units of labour. 
D)employ 20 fewer units of labour. 
E)employ 40 fewer units of labour

Quizplus · Accepted Answer

When the wage rate increases from $12 to $16 per hour and MRP shifts from MRP1 to MRP2, it means that the marginal product of labor has increased, which allows the firm to hire more labor and increase its output level.

According to the diagram, at the wage rate of $12 per hour, the firm hires 80 units of labor where MRP1 intersects with the marginal cost curve. If the firm is facing MRP2 at the wage rate of $16 per hour, it will hire labor up to the point where MRP2 intersects with marginal cost. This occurs at a labor input of 100 units, which is 20 more units of labor than it hired at the wage rate of $12 per hour. Therefore, the correct answer is A) employ 20 more units of labor.

The Diagram Below Shows the MRP Curve for a Firm