The diagram below shows the MRP curve for a firm producing high school math textbooks. 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 math textbooks (such that MRP shifts to MRP2), and an increase in the wage rate to $16 per hour. The firm should
A) employ 20 fewer units of labour.
B) employ 40 fewer units of labour
C) employ the same number of units of labour.
D) employ 20 more units of labour.
E) employ 40 more units of labour.

Question

The diagram below shows the MRP curve for a firm producing high school math textbooks. 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 math textbooks (such that MRP shifts to MRP2), and an increase in the wage rate to $16 per hour. The firm should
A) employ 20 fewer units of labour. 
B) employ 40 fewer units of labour 
C) employ the same number of units of labour. 
D) employ 20 more units of labour. 
E) employ 40 more units of labour.

Quizplus · Accepted Answer

When there is an increase in wage rate and MRP shifts to MRP2, the firm's optimal level of labor usage changes. The firm would want to employ fewer units of labor because the cost of each unit of labor has increased. However, the increase in demand for math textbooks increases the MRP, which would require the firm to employ more units of labor. 
Since the increase in MRP is greater than the increase in wage rate, the firm would end up employing 20 more units of labor (moving from L1 to L2). Therefore, the answer is D.

The Diagram Below Shows the MRP Curve for a Firm