If wage rate is less than the average revenue product, the firms would be earning?

A. loss
B. super normal profit
C. normal profit
D. higher revenue

Correct Answer: Option B

B. super normal profit

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 firms 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.