worker is generating $8 per hour in revenues to the firm, and a profit-maximizing employer will pay the

worker up to, but no more than, $8 per hour, because that is what the worker is worth to the firm.

Recall the definition of marginal product. Marginal product is the additional output a firm can produce by

adding one more worker to the production process. Since employers often hire labor by the hour, we’ll define

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14.1 • The Theory of Labor Markets 327

marginal product as the additional output the firm produces by adding one more worker hour to the

production process. In this chapter, we assume that workers in a particular labor market are

homogeneous—they have the same background, experience and skills and they put in the same amount of

effort. Thus, marginal product depends on the capital and technology with which workers have to work.
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