Concept:A firm compares the wage paid to labour with the revenue earned per worker to judge its profit level.
Explanation:The Average Revenue Product (
ARP) is the revenue obtained from each unit of labour employed.
The wage rate is the cost of hiring one unit of labour.
When the wage rate is less than the
ARP, each worker generates more revenue than the cost of employing that worker.
The firm earns super normal profit from this surplus revenue.
The existence of super normal profit attracts new firms into the industry.
As new firms enter, the demand for labour rises, pushing the wage rate upward.
This continues until the wage rate equals the
ARP.
At that point, the firm earns only normal profit.
Answer:B. super normal profit
