Purpose:

Objectives:

1. Marginal product of labor.
   
   
   1. The additional number of units of output a firm can produce because it has hired one more worker is the marginal physical product of that worker. The marginal value product of labor is the dollar value of the marginal physical product.
   2. If a firm hires more and more workers (but does not increase or improve the equipment those workers can use), each additional worker’s marginal physical product will be less (diminishing returns to labor).
2. A profit-maximizing firm will not pay more for a worker than he/she contributes to output. A firm that is not buying more equipment will maximize profits if it expands production (hires more workers) up to the point at which the marginal value product of the last worker hired equals the going wage.
3. Labor unions can raise wages by artificially restricting the supply of labor available to the firm. In the long run this reduces the number of workers the firm will employ.
4. Unions can contribute to economic output by reducing labor turnover and by improving communication between workers and management. Unions can reduce economic output by obstructing technical change, restricting work rules, and exacerbating inflation.