If wage rate is less than the average revenue product, the firms would be earning________
- loss
-
super normal profit
- normal profit
- higher revenue
The correct answer is: B
Explanation
MRP = Marginal Revenue Product
ARP = Average Revenue Product
Therefore, if the wage rate is less than the ARP, the firm will make super normal profit. As a result, new forms will enter the industry and the demand for labour will increase which will push up the wage rate so as to be equal to the ARP.