A firm notices that hiring a fourth worker increases total revenue by only $100, while the marginal cost of hiring that worker is $150. What should the firm do regarding its labor force?

The firm should not hire the fourth worker because the cost of hiring that worker is higher than the revenue they would bring in. When the firm hires a worker, they look at the extra money the worker generates, called marginal revenue, and compare it to the cost of hiring them, known as marginal cost. In this case, the fourth worker only adds $100 in revenue, but costs the firm $150. Since $100 is less than $150, the firm loses money by hiring that worker. Therefore, it would be better for the firm to keep only three workers, who can generate more value relative to their costs.