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.
You might also like to view...
Figure 1.1 displays exogenous variables entering a model from which emerge endogenous variables. Yet, in the five-step process to develop an economic model, the macroeconomist specifies the endogenous variables first, then the exogenous variables
Which is the correct sequence? Explain.
Refer to the above figure. The firm is currently producing at Q2. The firm should
A. shut down. B. reduce production. C. increase production. D. leave production as it is.
Suppose that the tastes of U.S. beer drinkers shift from domestic brands toward more expensive brands imported from Germany. If this change is large enough, it will cause the ___ for foreign currencies to increase, and the dollar to ________.
A. the demand; appreciate B. the demand; depreciate C. the supply; appreciate D. the supply; depreciate
In the short run average costs eventually ________ because of diminishing returns, and in the long run average costs eventually ________ because of diseconomies of scale.
A. decrease; decrease B. decrease; increase C. increase; increase D. increase; decrease