The Marginal Product of Labor

This technical note addresses one of the most important topics for companies and their managers: work. Specifically, how many people should a business hire and how much should they be paid? The note uses the example of Wail AlHayani, a kitchen owner who supplies quick-service restaurants with freshly prepared food, to examine hiring decisions and the setting of critical wages and salaries and thresholds. If AlHayani hired more workers, it would mean additional production and income as long as the value of the marginal product of labor exceeds wages. To maximize profits, a competitive firm should hire workers to the point where the value of the marginal product of labor equals wages.

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