If an input's marginal product increases for a particular firm while its price is fixed by market forces, then the employment of that factor should increase.

Question

Quizplus · Accepted Answer

If the input's marginal product increases, it means that the additional output produced by adding one more unit of the input is greater than before. This indicates that the input is becoming more productive and efficient, and thus it would be beneficial for the firm to hire more of that input to increase their overall output. Since the price of the input is fixed, the marginal revenue product (MRP) of the input would increase as well, making it more profitable for the firm to employ more of it. Therefore, the employment of that factor should increase.

If an Input's Marginal Product Increases for a Particular Firm