Question

Shoshanna owns a hair salon. She starts with one employee and hires a second a week after she opens. Shoshanna notices that after hiring the first and second worker, her total output increases and her marginal profit from each of these two employees is positive. Will it always be beneficial for Shoshanna to continually hire more employees?

Answer 1

Answer: No

Explanation: The given case illustrates the marginal benefit that someone receives from employing more more unit input.

In the given case, Shoshanna employed one more worker and this resulted in greater benefit for her, but if she keeps on adding the worker there will come a stage when she will face the diminishing marginal returns.

Diminishing marginal returns refers to the stage in which adding one more unit of input will results in lesser output than before.

Hence, we can conclude that shoshanna should not continue to hire.