Question

We learned that a firm should hire employees as long as the rule that marginal revenue product exceeds marginal cost holds. Many firms have financial management training programs where new hires are paid well for a year or two but do not produce much value during that time. Are such firms behaving in violation of the rule? Explain your answer

Answer 1

No, they are not in violation of the rule.

Explanation: The first periods of a new recruit is major aimed at improving and bringing the person up to speed with the knowledge and capacity required to perform efficiently.

It has been shown by various models that during the training of new employees,the employer is making an investment on the human capital that will yield benefits and rewards in the future like every other forms of investments.

THE INVESTMENT MADE ON THE NEW EMPLOYEES WILL HELP THE EMPLOYER TO EARN A HIGH RATE IF RETURN AS HE OR SHE WILL USE THE KNOWLEDGE GATHERED DURING THE TRAINING TO INCREASE THE MARGINAL REVENUE OF THE BUSINESS ORGANISATION.