The labor demand curve in a perfectly competitive factor market is the horizontal sum of all firms' _____ product of labor curves.
A)marginal
B)value of the marginal
C)marginal physical
D)average physical

Question

Quizplus · Accepted Answer

The labor demand curve in a perfectly competitive factor market is derived by horizontally summing up all the individual firms' marginal product of labor (MPL) curves. This is because in a perfectly competitive market, firms are price takers and must pay the market wage rate. Therefore, the value of the marginal product (VMP) of labor equals the market wage rate. The MPL curve shows the additional output produced by each additional unit of labor, while the VMP curve shows the additional revenue earned by each additional unit of labor. Since each unit of labor adds the same amount of revenue to all firms in a perfectly competitive market, the labor demand curve is the horizontal sum of all firms' VMP curves.

The Labor Demand Curve in a Perfectly Competitive Factor Market