Answer to Question #104921 in Macroeconomics for iqra

Question

explain the relationship between profit maximization condition and and the labor demand?

Answer 1

At the firm level, employee-employer relationships are determined by the modes of maximizing the benefits of each of them in a specific temporal and institutional context. For a hired employee, this means that he or she voluntarily and on a contractual basis becomes involved in a specific subordination system (production hierarchy), expecting the employer to fulfill its obligations. For the employer, that the employee he hires will provide the workplace with the required amount of the marginal product of labor, contributing to the function of maximizing the firm's profits.

The economic sense of a sufficient condition of maximum profit is that the law of decreasing marginal productivity must be fulfilled: every additional man-hour worked must bring an increase in output, but with increasing labor costs, this increase becomes less and less.