Question

Discuss the firm's objective, its constraints, and how it makes choices in its role as a buyer of resources. Additionally, please discuss how one might go about determining whether a person is worth the salary he or she is paid.

Answer 1

Firm's objectives : Profit maximization or alternatively we can say cost minimization . Making the most efficient use of scarce resources available

Constraints : Available technology and resources ( technology constraints ) , limited information available ( information constraint ) , marketting strategy of rivals and consumers reservation price ( market constraints ) .

Buyer of resources : Firm tries to minimize cost , so buys the resources as per their marginal value . Also just the amount of resources required .

A person is worth the salary that is paid can be determined by the wage = value of marginal product of labor . Wage is the marginal cost of extra unit of labor . VMPL is the additional benefit from that extra unit of labor . To maximize profits firms hire upto this point . VMPL is the labor demand curve . If the additional benefit is equivalent to additional salary then the person is worthy .