ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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More workers and raise the wage rate
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More workers and lower the wage rate
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More workers at the present wage rate
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Fewer workers at the present rate
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Detailed explanation-1: -Explanation: A profit maximizing firm will hire labor until the marginal product of labor is greater than the wage rate. If the marginal product of labor is greater than the wage rate, then the firm should hire more labor until the two values are equal.
Detailed explanation-2: -A competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor is equal to the wage.
Detailed explanation-3: -An increase in the supply of labor will decrease the equilibrium wage, and a decrease in the supply of labor will increase the equilibrium wage. An increase in the demand for labor will increase the equilibrium wage, and a decrease in the demand for labor will decrease the equilibrium wage.
Detailed explanation-4: -The perfectly competitive firm’s profit‐maximizing labor‐demand decision is to hire workers up to the point where the marginal revenue product of the last worker hired is just equal to the market wage rate, which is the marginal cost of this last worker.