The condition W/P=MPL means

Question

BlackTom AI · Accepted Answer

The question presents a microeconomics relation: W/P = MPL, which ties nominal wages W, price level P, and the marginal product of labor MPL. This requires us to interpret what each side represents and what equality implies.
Option 1: 'nominal wages equal the marginal product of labor.' If W = MPL were true, that would equate the wage in monetary terms to the marginal product of labor, but the actual expression is W divided by the price level P equals MPL, i.e., the real wage equals MPL. Therefore this option ignores the price adjustment and misstates the relationship between nominal wages and MPL.
Option 2: 'labor is paid more than its productivity.' This would imply W > MPL in real terms (after adjusting by the price level), contradicting the equality W/P = MPL. Since the equation equates real wage to MPL, it does not say wages exceed productivity; it asserts a direct equality in real terms, so this option is incorrect.
Option 3: 'the real wage equals the output produced by the last worker.' Here, 'real wage' is W/P, and MPL is the additional output from hiring one more worker. In many texts, marginal product of labor is interpreted as the additional output produced by the last worker, so the equality W/P = MPL indeed states that the real wage equals the marginal product of labor, which is the output contributed by the last worker. This is a correct interpretation of the equation provided.
Option 4: 'wages are unrelated to productivity.' The identity W/P = MPL explicitly links the real wage to the marginal product of labor, i.e., productivity of the last unit of labor. Saying wages are unrelated to productivity directly contradicts the given condition, making this option incorrect.

ECON_002_001_25F Problem Set 2

The condition W/P=MPL means

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