If the wage exceeds the value of the marginal product of labor, then hiring another worker:
A. Decreases the firm’s total revenue
B. Increases the firm’s profit
C. Increases the firms total cost
D. All of the above are correct
I picked A?
As a result of severe flooding a farmer loses one-half of his productive farmland. If the property of diminishing returns applies to all factors of production, he should expect to see:
A. An increase in the marginal productivity of his remaining land and an increase in the marginal productivity of his labor
B. An increase in the marginal productivity of his remaining land and a decrease in the marginal productivity of his labor
C. A decrease in the marginal productivity of his remaining land and an increase in the marginal productivity of his labor
D. A decrease in the marginal productivity of his remaining land and a decrease in the marginal productivity of his labor.
I picked D?
1) I would go with C, increases a firms costs.
2) Hummm, a confusing question, which needs clarification and simplifying assumptions. I presume the farmer does not get rid of half of his labor as a result of losing half of his land. Since each laborer has less land to work with the MP of labor should go down. Second, assuming the lost land is measurably no different from the remaining land, the farmer simply has less land. Since we are assuming diminishing return, the MP of land should go up. I would go with B.
For the first question, the correct answer is actually B. If the wage exceeds the value of the marginal product of labor, then hiring another worker would increase the firm's profit. The company can obtain additional revenue from the worker's productivity that exceeds the cost of hiring them.
For the second question, the correct answer is B. When the farmer loses half of his productive farmland due to flooding, the remaining land may experience an increase in marginal productivity because the resources available per unit of land have increased. However, the marginal productivity of labor is likely to decrease because there is less land available to work with, resulting in decreased overall productivity.
For the first question:
The wage exceeding the value of the marginal product of labor implies that the cost of hiring an additional worker is higher than the additional revenue generated by that worker's output. In this case, it would not be economically beneficial for the firm to hire another worker.
The correct answer is C. "Increases the firm's total cost" since hiring another worker would add to the firm's costs without adding enough value to offset the additional expense.
For the second question:
If the property of diminishing returns applies to all factors of production, including land and labor, the farmer should expect to see a decrease in the marginal productivity of his remaining land and a decrease in the marginal productivity of his labor.
The correct answer is D. "A decrease in the marginal productivity of his remaining land and a decrease in the marginal productivity of his labor."