In traditional economics you want to look at marginal cost versus marginal revenue. If it costs you $10 to produce another widget you can sell at $10.01, you wi

In traditional economics you want to look at marginal cost versus marginal revenue. If it costs you $10 to produce another widget you can sell at $10.01, you will in order to maximize profits. You will hire people up until the point where the marginal revenue that employee provides is equal to that of the marginal cost of that employee. Of course companies make profit, but that's because the marginal cost curve is upward past a certain point. So on average, the average cost is less than the marginal cost A visual representation explains it well. When you talk about profits, you're talking about average cost. When you're talking about whether you should hire an extra worker, you're talking about marginal cost versus marginal revenue. https://apecon3.wikispaces.com/Marginal+Revenue https://apecon3.wikispaces.com/Marginal+Revenue