Concept:The hiring decision depends on the extra value a worker adds to output.
Explanation:A firm compares the marginal productivity of labour with the wage rate.
Marginal productivity is the additional output produced by one more worker.
The revenue from that extra output is called the marginal revenue product (
MRP).
If
MRP is greater than the wage, the firm gains by hiring more workers.
Hiring continues until
MRP equals the wage rate.
Therefore, the amount of labour hired is driven by productivity, not just skill or availability.
Answer:C. marginal productivity of labour