Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
By comparing the marginal cost of hiring with the marginal revenue product of labor
B
By ensuring that every employee is paid the same wage
C
By setting fixed quotas for hiring based on industry standards
D
By assessing employee satisfaction as the main hiring criterion
Understanding the Answer
Let's break down why this is correct
Answer
Marginal analysis helps firms decide how many employees to hire by comparing the additional benefits of hiring one more worker to the additional costs. When a firm considers hiring an extra employee, it looks at how much extra output that worker will produce and how much revenue that output will generate. If the revenue from the extra output is greater than the cost of hiring the worker, then it makes sense to hire them. For example, if hiring one more worker increases production by $1,000, but costs $800 in wages, the firm benefits by $200. Thus, firms use marginal analysis to find the point where the cost of hiring equals the revenue generated, helping them reach an optimal number of employees.
Detailed Explanation
Marginal analysis helps firms compare the extra cost of hiring one more worker with the extra money that worker can bring in. Other options are incorrect because Thinking all employees should earn the same wage ignores differences in skills and contributions; Setting fixed hiring quotas can limit a firm's ability to respond to changes in demand.
Key Concepts
labor market equilibrium
Topic
Marginal Analysis in Hiring
Difficulty
easy level question
Cognitive Level
understand
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