Changes

Only labor can be increased, which is possible under answers (B), (D) and (E).  We've improved our odds of success to a 33% chance.  Those are good odds on a difficult question like this.  But we can improve our chances even more.

Only labor can be increased, which is possible under answers (B), (D) and (E).  We've improved our odds of success to a 33% chance.  Those are good odds on a difficult question like this.  But we can improve our chances even more.

(B) and (D) look similar so let’s turn to (E) first.  At first glance, it seems awkward and contrived.  If in a hurry, you may want to limit the overly complex answers first.  When have we ever divided price by marginal product? Never.

(B) and (D) look similar so let’s turn to (E) first.  The “marginal product of labor” is the additional units (“product”) produced due to an additional unit of labor.  Remember “MP”?  The term does not include “revenue” or “price”, so it only gives you the quantity.  We need to multiply that quantity by product price to obtain revenue, what the firm owner cares the most about.  Choice (E) makes no sense by dividing terms that should be multiplied together. We can eliminate it.

<>The “marginal product of labor” is the additional units (“product”) produced due to an additional unit of labor.  Remember “MP”?  The term does not include “revenue” or “price”, so it only gives you the quantity.  We need to multiply that quantity by product price to obtain revenue, what the firm owner cares the most about.  Choice (E) makes no sense by dividing terms that should be multiplied together.  We can eliminate it.

Back to (B) and (D).  The only difference between the two is the term “value of” in (B).  Should we go for it?  Think about what “marginal product” is.  It is a quantity, not a dollar amount.  Yet we are comparing it to “wage rate,” which would be in dollars.  We need to insert “value of” to convert a quantity into equivalent dollars.  (B) is must be the correct choice because it compares dollars to dollars, while choice (D) does not.

The key to good test-taking, particularly on economics exams, is to make sure you fully understand each question before trying to answer it.

 

The key to good test-taking, particularly on economics exams, is to read the question very carefully and then improve your odds by eliminating wrong answers before selecting the right one.

== Final Comments ==

== Final Comments ==