Statement I: For a firm, the extra cost of hiring one more unit of labour is the wage rate.
Statement II: If the value of marginal product of labour is less than the wage rate, the firm can raise its profit by hiring one more unit of labour.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
Statement I: For a firm, the extra cost of hiring one more unit of labour is the wage rate. — True. The cost of one more unit of labour is the wage rate paid for it.
Statement II: If the value of marginal product of labour is less than the wage rate, the firm can raise its profit by hiring one more unit of labour. — False. When VMPL is less than the wage, the last unit adds less to revenue than to cost. The firm raises its profit by employing one unit less.
NCERT (2026-27): “Wage Determination in Labour Market … The firm being a profit maximiser will always employ labour upto the point where the extra cost she incurs for employing the last unit of labour is equal to the additional benefit she earns from that unit. The extra cost of hiring one more unit of labour is the wage rate (w). The extra output produced by one more unit of labour is its marginal product (MPL) and by selling each extra unit of output, the additional earning of the firm is the marginal revenue (MR) she gets from that unit. Therefore, for each extra unit of labour, she gets an additional benefit equal to marginal revenue times marginal product which is called Marginal Revenue Product of Labour (MRPL). Thus, while hiring labour, the firm employs labour up to the point where w = MRPL and MRPL = MR × MPL” “Wage Determination in Labour Market … Since we are dealing with a perfectly competitive firm, marginal revenue is equal to the price of the commoditya and hence marginal revenue product of labour in this case is equal to the value of marginal product of labour (VMPL). As long as the VMPL is greater than the wage rate, the firm will earn more profit by hiring one more unit of labour, and if at any level of labour employment VMPL is less than the wage rate, the firm can increase her profit by reducing a unit of labour employed.” |