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Value of Marginal Productivity

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Assume a firm employs 10 workers and pays each $15 per hour. Further assume that the MP of the 10th worker is 5 unit of output and that the price of the output is $4. In the short run should the firm

a. Hire additional workers
b. Reduced the amount of workers employed
c. Continue to employ 10 workers

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Solution Summary

This solution applies the theory of marginal productivity to advise the firm on what course of action to take.

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This firm should hire additional workers. The firm must hire workers as long as the value of the marginal productivity (MP) of the last ...

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