Principles of Economics- Mankiw (5th) 389

Principles of Economics- Mankiw (5th) 389 - CHAPTER 18 T H...

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CHAPTER 18 THE MARKETS FOR THE FACTORS OF PRODUCTION 401 Notice that as the number of workers increases, the marginal product of labor declines. As you may recall from Chapter 13, this property is called diminishing marginal product. At first, when only a few workers are hired, they pick apples from the best trees in the orchard. As the number of workers increases, additional workers have to pick from the trees with fewer apples. Hence, as more and more workers are hired, each additional worker contributes less to the production of apples. For this reason, the production function in Figure 18-2 becomes flatter as the number of workers rises. THE VALUE OF THE MARGINAL PRODUCT AND THE DEMAND FOR LABOR Our profit-maximizing firm is concerned more with money than with apples. As a result, when deciding how many workers to hire, the firm considers how much profit each worker would bring in. Because profit is total revenue minus total cost,
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