Q.A firm sells its product in a perfectly competitive market at ₹15 per unit. The marginal physical product (MPP) schedule of labour is: 1st worker = 8 units, 2nd worker = 7 units, 3rd worker = 6 units, 4th worker = 5 units, 5th worker = 4 units, 6th worker = 3 units. If the daily wage rate is ₹75, how many workers will the firm employ according to the marginal productivity theory?

This problem applies the marginal productivity employment rule -- hire a worker as long as their marginal revenue product (MRP) is at least equal to the wage rate.

Step 1 -- Compute MRP for each worker. Since the firm operates in a perfectly competitive market, marginal revenue (MR) equals the market price of ₹15 for every unit sold. MRP is calculated as $MRP = MPP \times MR$:

Step 2 -- Apply the employment rule. A profit-maximising firm hires a worker as long as that worker's MRP is at least equal to the wage rate of ₹75, since hiring is worthwhile whenever the extra revenue earned covers the extra wage paid.

Step 3 -- Determine the cut-off. Workers 1 through 4 all have MRP ≥ ₹75 (₹120, ₹105, ₹90, and ₹75 respectively), so hiring each of them adds at least as much revenue as it costs. The 5th worker's MRP is only ₹60, below the ₹75 wage -- hiring this worker would cost more than the revenue gained, so the firm stops before the 5th worker. …

Step 1: Since the firm is a price-taker under perfect competition, MR = Price = ₹15. Step 2: Compute MRP = MPP × 15 for each worker: 8×15=₹120; 7×15=₹105; 6×15=₹90; 5×15=₹75; 4×15=₹60; 3×15=₹45. Step 3: Apply the rule -- hire while MRP ≥ wage (₹75). Workers 1-4 satisfy this; the 5th worker's MRP (₹60) does not, so the firm stop …

A common mistake is comparing the wage rate against MPP (physical output) instead of MRP (money value of output) -- the two are only equal if price happens to be ₹1. Another frequent slip is including the 5th worker because their MPP (4 units) still looks 'po …