Final answer:
The profit maximizing rule for hiring labor and capital is that a firm should only pay up to the value of the employee's marginal productivity. Marginal Product (MP) is the additional output from an extra worker, and due to the law of diminishing marginal product, firms reach a point where hiring more workers does not increase productivity proportionally.
Step-by-step explanation:
The profit maximizing rule for hiring resources, specifically labor (L) and capital (K), pertains to the marginal productivity theory. According to this theory, a firm should never pay more for a worker's wage and benefits than the value of their marginal productivity to the firm. The marginal product (MP) of labor is the additional output generated by employing one more worker and is calculated as the change in total product divided by the change in labor: MP = ∆TP/ ∆L.
Initially, the marginal product may increase as more workers are added due to factors such as increased efficiency from teamwork, but eventually, the firm experiences the law of diminishing marginal product. This happens because, in the short run, there is fixed capital, and adding more workers will lead to a decrease in the marginal product. A firm will continue to hire workers up to the point where the value of the marginal product equals the cost of hiring the worker. Hiring beyond this point would not contribute to profit maximization.