Cheat Sheet: How Many Workers Should Be Hired?

This might help you with the concepts regarding the optimal number of workers to be hired. The demand for labor is a derived demand, derived from the marginal product of labor (the additional output of the next worker hired) and the price of the ouptput being produced. The marginal product of labor times the price of the output is called the marginal revenue product. Here is an example:

Number of Workers               Units of Ouptut

2                                             120

3                                             170

4                                             210

5                                             240

The marginal product of worker #3 is 50. The marginal product of worker #4 is 40. The marginal product of worker #5 is 30. If the ouptut sells for 10 dollars per unit, the marginal revenue product of worker #3 is $500, for #4 it is $400, and for #5 it is $300.

“Original document by Peter Turner licensed CC BY”