A corporate executive makes the following statement – "The company must keep hiring more workers up to the point where the marginal productivity of the last worker we hire is zero. This way we can maximize the total productivity of the firm"
Critically evaluate this statement. Also comment on whether this is the correct objective function for the firm.
This statement is true. If the company continues to hire all the way to the point where the marginal product of the last worker hired is zero then total product will be maximized. Hiring more workers than this will likely lead to negative marginal productivity and hiring fewer workers will lead to a positive marginal product. Either way, total product is maximized at a marginal product of zero. However, this may not be a wise policy since the objective function of a firm is to maximize profits not total productivity.
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