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Production and Cost in the Short Run

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1) At a management luncheon, two managers were overheard arguing about the following statement,"a manager should never hire another worker if the new person causes diminishing returns". Is this statement Correct? If so why? If not explain why not? In detail.

2) Explain why it would cost Pete Sampras or Venus Williams more to leave the pro tennis tour and open a tennis shop than it would cost a coach of a tennis team to do so.

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This solution explains why it would cost Pete Sampras or Venus Williams more to leave the pro tennis tour and open a tennis shop than it would cost a coach of a tennis team to do so.

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1) The statement is not correct. It is also profitable if the returns is diminishing, but still higher than the worker's wage. Because if the marginal product revenue (Price*Marginal Product) is higher than marginal cost, (wage of hiring another worker) the manager can still earn profit by hiring that worker. But ...

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