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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 Preview


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

    Solution Summary

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