A company will hire workers as long as the marginal product of labor exceeds the wage.
What is marginal product of labor?
- In a competitive market, the value of the marginal product of labor is calculated by multiplying the wage paid to labor by the marginal product of labor.
- The marginal product of labor decreases as more people are hired because having more and more employees will eventually not make the company more productive.
- In perfect competition, the marginal revenue product equals the marginal product of labor multiplied by the price of the good that labor is involved in producing; any change in either of those two variables shifts the curve.
- Labor and raw materials are examples of inputs. According to the law of diminishing marginal returns, when an advantage is gained in a factor of production, the marginal productivity will typically decrease.
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