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If the value of the marginal product of labor exceeds the wage, then employing another worker__________

a) increases the marginal product of labor.
b) increases profit.
c) increases the value of the marginal product of labor.
d) cuts costs.

1 Answer

6 votes

Final answer:

Employing an additional worker when the value of the marginal product of labor exceeds the wage results in increased profits for the firm, as the revenue generated from the additional output outweighs the additional labor cost.

Step-by-step explanation:

If the value of the marginal product of labor exceeds the wage, then employing another worker increases profit. This situation occurs because the additional revenue from selling the extra output produced by the additional worker is greater than the cost of hiring that worker, which improves the firm's profitability. This concept is rooted in the understanding that the marginal product of labor refers to the extra output generated by one more unit of labor, and when this is valued higher than the cost of labor (wage), it is advantageous for a firm to increase employment. It's important to note that this does not necessarily increase the marginal product of labor or lower costs directly; rather, it increases the firm's profit due to the revenue-cost difference.

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