A consultant interviews the hiring manager of a small, profit-maximizing firm. The manager explains that the firm used to have 15 employees but decided not to rehire when the most-recently-hired employee left the company, so the firm now has 14 employees. We can infer that
A)for the 15th employee, the wage exceeded the value of the marginal product of labor.
B)for the 15th employee, the value of the marginal product of labor exceeded the wage.
C)the firm is too small and should rehire to replace the 15th employee.
D)the firm is no longer attempting to maximize profits.

Question

Quizplus · Accepted Answer

The firm's decision not to rehire the 15th employee implies that the wage paid to that employee exceeded the value of the marginal product of labor, otherwise, the firm would have continued to employ them. This is consistent with profit-maximizing behavior, as the firm would not want to pay more for labor than the value it generates. Option B cannot be inferred. Option C and D are not necessarily true.

A Consultant Interviews the Hiring Manager of a Small, Profit-Maximizing