(2.1) Marginal decisions: Marginal product of labour

Marginal product of labour is the amount of output (usually expressed in terms of real output or profits) generated by adding one more unit of labor to a given amount of capital and other fixed inputs. The decision to employ one more unit of labour is a marginal decision because it depends on the additional output relative to the cost of employing the labor. If the marginal product of the additional labor is greater than the cost of employing it, the decision to employ it is sensible. If the marginal product is less than the cost, then the decision to employ the labor is unwise.