If the wage rate is less than the marginal revenue product of labor, the firm should ________ to maximize profits.
A) hire less labor and produce less output
B) hire less labor and produce more output
C) hire more labor and produce less output
D) hire more labor and produce more output

Question

Quizplus · Accepted Answer

The marginal revenue product of labor is the additional revenue a firm earns by employing one more unit of labor. If the wage rate is less than this amount, it means the firm can increase its profits by hiring more labor, as each additional worker costs less than the value they add to the firm's output. Therefore, to maximize profits, the firm should hire more labor and produce more output.

If the Wage Rate Is Less Than the Marginal Revenue