Comment on the following statement: As the market wage rises, the ...

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Comment on the following statement: As the market wage rises, the firm is likely to hireless labor.
 
  What will be an ideal response?

Question 2

The manager of a baseball team wants to hire a new pitcher for 4 million per year. Under what circumstances would it make sense for the team to do so?
 
  What will be an ideal response?

[stanleka1]

Answer to Question 1

The statement is true. The firm compares the wage with the marginal revenue product to determine the optimal level of labor to hire. Because of diminishing returns, marginal revenue product falls as more workers are hired. (This implies that marginal revenue product rises as fewer workers are hired.) Thus, as the wage rises, the firm will lower its level of labor used.

Answer to Question 2

If adding the pitcher to the team increases revenues by more than 4 million per year, the team will see an increase in its profits.