If wage rate is less than the average revenue p... - JAMB Economics 2024 Question

The question explores the relationship between wage rates and the average revenue product (ARP) of labor to determine a firm's profitability.* Average Revenue Product (ARP): This represents the total revenue generated divided by the quantity of labor employed. It signifies the revenue generated by each unit of labor, on average.* Wage Rate: This is the cost of employing each unit of labor.When the wage rate is less than the ARP, each unit of labor generates more revenue than its cost. The difference between the ARP and the wage rate contributes to profit. Because the wage rate is lower than the amount of revenue generated by each worker, the firm is earning a profit above the normal level (which just covers costs, including a reasonable return for the business owner). This is known as supernormal profit.