Final answer:
A firm emphasizes marginal revenue product (MRP) when hiring workers, ensuring they do not hire beyond the point where the market wage equals the MRP. This careful balance allows firms to maximize profits by aligning labor costs with the additional revenue that each worker generates.
Step-by-step explanation:
A firm tends to emphasize marginal revenue product when deciding how many workers to employ. Marginal revenue product (MRP) is the additional revenue generated from the hiring of one more worker. A profit-maximizing firm will hire workers up to the point where the market wage equals the marginal revenue product. If, for example, the going market wage is $20, the firm will hire workers until the last worker's MRP is equal to that wage, ensuring that labor costs do not exceed the revenue the workers bring in.
If the wage has risen to $24 an hour, and the firm responds to union demands by investing more in machinery, the productivity of workers may increase. Nevertheless, the firm could afford to hire fewer workers because machinery now substitutes some of the labor. This approach helps the firm maintain cost efficiency despite higher wages. During a recession, firms hesitate to lay off workers initially, fearing the loss of skilled labor and the subsequent costs of rehiring and training new workers when demand returns.
Moreover, decision-making regarding employment levels during changing economic conditions can be influenced by the cost of capital, such as machinery. If the cost of machines rises relative to labor, firms might opt for a shift towards using more labor as opposed to capital-intensive production methods.