The Diagram Below Shows the MRP Curve for a Firm

question 70

Multiple Choice

The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
FIGURE 13- 2
-Refer to Figure 13- 2.Suppose this firm is facing MRP1,a wage rate of $12 per hour and is employing 150 units of labour.At this level of employment,

• A)the last unit of labour contributes as much to the firm's costs as to the firm's revenues and so the firm should not change its use of labour.
• B)the last unit of labour is adding less to the firm's cost than it is adding to the firm's revenue,so it should increase the use of labour.
• C)the firm has shifted the MRP curve to MRP2.
• D)the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue,so it should reduce the use of labour.
• E)the firm has shifted the MRP curve to MRP3.

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Definitions:

Deadweight Loss

A shortfall in economic efficiency due to a good or service not reaching free market equilibrium.

Total Surplus

The combined value of consumer and producer surplus that signifies the overall advantage to society through the manufacturing and consumption of products or services.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive in the market.

Producer Surplus

The difference between the amount that producers are willing to accept for a good or service versus what they actually receive.