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If a firm hires a worker by paying him a wage higher than the value of the marginal product of the​ worker, ________. A. the firm will earn higher profits B. firing the worker will increase the​ firm's profits C. firing the worker will reduce the​ firm's profits D. the firm is making an optimum decision

User Clemesha
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Answer:

B. Firing the worker will increase the firm's profits

Step-by-step explanation:

Marginal product refers to change in the total product when an additional unit of input is used.

As per the marginal product revenue theory, workers would be hired till the point the marginal revenue derived from the product is equal to their wage rate.

If the marginal revenue attributable to a worker is lesser than his wage rate, then employing such a worker would lead to fall in the profits i.e it's a loss to the firm since costs exceed revenue.

In the given case, value of the marginal product refers to marginal revenue which is attributable to the worker. Thus, the marginal revenue derived here is lesser than his wage rate. This means to keep such a worker employed would reduce the profits.

Hence, firing the worker will increase the firm's profits as costs would reduce more than the revenues.

User Satheesh Cheveri
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