If the wage exceeds the value of the marginal product of labor, then hiring another worker:

Question

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?

Answer 1

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.