Question

The marginal productivity theory states that if a firm operates in a perfectly competitive factor market, it pays each factor of production its marginal revenue product. However, this theory may fail to hold if factor markets are not competitive.
One means by which factor markets may fail to be competitive is if there is imperfect information. Which of the following are ways in which firms seek to overcome information problems? Select all that apply.

a) Only hiring workers who have earned good grades in college.

b) Always hiring from the outside to avoid being accused of discrimination.

c) Promoting workers from within the company who have shown themselves to be productive, rather than hiring from outside.

Answer 1

Answer:

a) Only hiring workers who have earned good grades in college.

Explanation:

The Marginal Productivity theory defines as change in revenue of a business resulting due to employment of one additional labor.

This theory has many assumptions that perfect  competition prevails in the market. All workers have same abilities and skills. Productivity of labors can be measured accurately. Every unit is homogeneous etc.

To overcome this information problem a firm should hire only workers who have earn good grades in college. It assumes that these workers will have greater skills and will contribute in revenue contribution to the organization.