Question

A company hires one worker and sees that the worker adds more to total revenue than total cost. The company seeing this as beneficial hires one more worker, now say that still MRP>MRC, but due to diminishing marginal productivity, the contribution to revenue although higher is now less than the previous worker. The company keeps on hiring more workers until MRP=MRC, then stops at the optimal input level of labor, if it were to hire more than MRC would be greater than MRP, meaning the last worker hired adds more to costs than revenue, signaling the company to hire less.

1.) How does a restaurant owner decide to hire the optimal number of waiters or waitresses to work? Use the explanation above in your examples.

Answer 1