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

Step 1: Analyze the question The question compares the wage rate (the cost of labour per worker) with the average revenue product (ARP), which is the revenue earned per worker employed. It asks what the firm earns when wage < ARP.

Step 2: Explain the concept

• Wage rate (W) is the average cost of hiring one worker. In a competitive labour market, it is the average cost of labour.
• Average revenue product (ARP) is total revenue divided by the number of workers, so it is the average revenue each worker brings in.

Comparing the two:

• If W > ARP, each worker costs more than they earn, so the firm makes a loss.
• If W = ARP, cost equals revenue per worker, so the firm makes normal profit (breakeven).
• If W < ARP, each worker brings in more than they cost, so the firm makes abnormal (super normal) profit.

Step 3: Solution Here, W < ARP, so:

Revenue per worker − Cost per worker > 0

Total revenue exceeds total labour cost. This surplus is profit above normal profit, which is super normal profit (also called abnormal profit).

Step 4: Check the options

• A. Loss: this would occur if W > ARP. ✗
• B. Super normal profit: this matches W < ARP. ✓
• C. Normal profit: this would occur if W = ARP. ✗
• D. Higher revenue: this is not a profit measure and is not the direct implication. ✗

Answer: B. Super normal profit

Step 5: Exam tip Remember it this way:

• W > ARP → Loss
• W = ARP → Normal profit
• W < ARP → Super normal profit

Just ask yourself whether the worker earns more for the firm than they cost. If yes, the firm profits.