If for a firm MRP > MFC, then the firm:
a. is maximizing profits and should continue producing its current output.
b. is maximizing factor costs and therefore is maximizing profits.
c. should produce more output by increasing the quantity of factors employed.
d. should produce less output by decreasing the quantity of factors employed
Thank you for using the Jiskha Homework Help Forum. Although this is not my area, the following sites may help you with The Labor Market:
1. www.econ.iastate.edu/classes/econ101/Herriges/
2. (Broken Link Removed)
3.
cwx.prenhall.com/bookbind/pubbooks/millerecon_ca/chap.
P.S.
1. http://en.wikipedia.org/wiki/Microeconomics (good definition of microeconomics)
2. http://www.collegeboard.com/student/testing/clep/ex_pmic.html (from the College Board, information about the AP Exam)
3. http://economics.about.com/od/microeconomics/a/micro_text.htm (online textbook)
4.
And, I would add, do a little research, think the problem through, then take a shot. Hint: a firm maximized profits when MRP=MFC. Since MRP>MFC, you can eliminate answers a and b. Take it from here.
c. should produce more output by increasing the quantity of factors employed.
If MRP (Marginal Revenue Product) is greater than MFC (Marginal Factor Cost), it means that the firm is generating more revenue from each additional factor of production than it is costing to employ that factor. In this case, the firm should produce more output by increasing the quantity of factors employed. This means that the correct answer is option c: "should produce more output by increasing the quantity of factors employed."
To determine the correct answer, we need to understand the concepts of marginal revenue product (MRP) and marginal factor cost (MFC) in microeconomics.
Marginal revenue product (MRP) measures the additional revenue a firm earns by employing an additional unit of a factor of production (usually labor). It is calculated by multiplying the marginal product of the factor by the marginal revenue generated by each unit of output. MRP = Marginal Product of the Factor × Marginal Revenue.
Marginal factor cost (MFC) represents the additional cost a firm incurs by employing an additional unit of a factor of production (usually labor). It is calculated by dividing the change in total factor cost by the change in the quantity of factors employed. MFC = Δ Total Factor Cost / Δ Quantity of Factors Employed.
Now, let's analyze the given statement: MRP > MFC.
If MRP is greater than MFC, it means that the additional revenue generated by employing an additional unit of the factor (MRP) exceeds the additional cost incurred in employing that additional unit (MFC).
In this case, the firm can increase its profits by producing more output because the additional revenue generated by the last unit of the factor is greater than the additional cost incurred to employ it. Therefore, the correct answer is c. The firm should produce more output by increasing the quantity of factors employed.
Note that if MRP is equal to MFC (MRP = MFC), the firm is maximizing its profits at the current level of factor employed, and it should continue producing its current output (answer a). If MRP is less than MFC (MRP < MFC), the firm is not maximizing its profits, and it should consider producing less output by decreasing the quantity of factors employed (answer d).
Remember to always consider the concepts and relationships between variables to analyze and answer questions in economics.