The wage rate for widget makers is currently $25 per hour and Ajax hires 20 widget makers. If the wage rate were decreased to $20, what would happen to the marginal revenue product for labor at Ajax?

The question is not complete, below is the completed question:

The wage rate for widget makers is currently $25 per hour and Ajax hires 20 widget makers. If the wage rate were decreased to $20, what would happen to the marginal revenue product for labor at Ajax?

A) It would remain the same.

B) It would increase since Ajax's demand for labor curve will shift.

C) It would increase since the price of widgets would decrease.

D) It would decrease since Ajax will hire more workers.

The correct answer is:

It would decrease since Ajax will hire more workers. (D)

Explanation:

Marginal Revenue Product for Labour (MRPL) is the extra labour generated when an extra worker is employed. In this case, since the wages decreased from $25 to $20, Ajax will hire more workers, because it can afford to pay more workers, meanwhile, the extra labour generated on the employment of an extra worker will decrease. The MRPL is used by firms to determine the number of labour to employ since they have to employ the right amount of labour to maintain profit and prevent diminishing returns associated with excess labour employment.

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