The marginal value product of labor curve for a competitive firm is:
A)upward-sloping because marginal product of labor and capital are diminishing.
B)downward-sloping because marginal product of labor is diminishing.
C)upward-sloping because marginal product of labor and marginal revenue are diminishing.
D)downward-sloping because average product of labor is diminishing.

Question

Quizplus · Accepted Answer

The marginal value product of labor curve for a competitive firm is downward-sloping because as the firm hires more workers, the marginal product of labor (i.e. the additional output produced by each additional worker) eventually decreases due to the law of diminishing returns. This, in turn, leads to a decrease in the marginal revenue product of labor. Therefore, the curve representing the relationship between the marginal product of labor and the wage rate is downward-sloping.

The Marginal Value Product of Labor Curve for a Competitive