Which of following is the hiring rule? Hire as much labor as possible. Hire labo

Question

Which of following is the hiring rule?

Hire as much labor as possible.

Hire labor up until the marginal resource cost is equal to the marginal revenue product.

Hire as many workers as needed to maximize total output.

Hire labor up until marginal product is maximized.

Hire labor only if capital is unavailable.

Hire as much labor as possible.

Hire labor up until the marginal resource cost is equal to the marginal revenue product.

Hire as many workers as needed to maximize total output.

Hire labor up until marginal product is maximized.

Hire labor only if capital is unavailable.

Explanation / Answer

B) Hire labor up until the marginal resource cost is equal to the marginal revenue product.

The marginal resource cost curve is the additional cost incurred by employing one more unit of the resource. When there is an upward sloping supply curve of labor, if you employ one more worker, the monopsonist will not only pay a higher wage to the next worker, but also has to pay a higher wage to all the workers . This causes the marginal resource cost to be to greater than the supply curve. For example, if one worker can be hired at $25 and the second worker can be hired at $30, then the marginal resource cost of hiring the second worker is $35 which includes the $30 paid to the second worker plus the five dollar increase in the wages of the first worker.

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