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    Marginal Productivity Theory

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    What if a firm employs 10 workers and pays each $15 per hour. Further assume that the MP of the 10th worker is 5 units of output and that the price of the output is $4. According to economic theory, in the short run,

    a. the firm should hire additional workers.
    b. the firm should reduce the number of workers employed.
    c. the firm should continue to employ 10 workers.
    d. More information is required to answer this question.

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    Solution Preview

    We know that MP = 5, the marginal revenue = 4
    According to the marginal ...

    Solution Summary

    Marginal Productivity Theory is applied here.