Final answer:
The concept of diminishing marginal productivity explains why the marginal product of labor first increases as a firm hires more employees but eventually declines due to fixed capital constraints.
Step-by-step explanation:
The statement that when a firm hires more and more employees, the marginal product of labor will first increase but eventually decline, is true. This phenomenon is known as diminishing marginal productivity. In the context of production, the marginal product of labor refers to the additional output generated by employing one more worker. Initially, as more workers are hired, they can assist in various tasks, thus increasing the efficiency and the total output. However, because of fixed capital (like machinery and workspace), there are limits to how much additional production each new worker can contribute. Once the optimal level of employment is surpassed, each additional worker contributes less than the previous one, leading to a decline in the marginal product of labor.