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Author Question: Assume that an employer discovers that the marginal revenue product of the last two workers that he ... (Read 325 times)

09madisonrousseau09

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on: Jun 29, 2018
Assume that an employer discovers that the marginal revenue product of the last two workers that he has hired is less than the wage rate that he is paying them.
 
  He is operating in a purely competitive market in both the output that he sells and the labor that he hires. What would you advise this employer to do and why?

Question 2

Explain why an employer in a perfectly competitive market will hire more workers when the marginal revenue product is greater than the wage.
 
  What will be an ideal response?


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essyface1

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Reply #1 on: Jun 29, 2018
Answer to Question 1

It would be advisable if this employer laid off these two workers. The reason is that the wage rate in a competitive market is the same as the marginal cost of labor. Since these two workers are not paying their way laying them off will increase the profitability of the firm or lower its losses.

Answer to Question 2

The marginal revenue product represents the value of hiring the worker to the firm. It is the additional revenue that the firm gains from hiring the worker. If the gain is greater than the cost of hiring the worker (which is the wage in a competitive labor market), the firm will increase its profits by hiring the additional worker.


09madisonrousseau09

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Reply 2 on: Jun 29, 2018
Wow, this really help

nathang24

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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