The firm's value of marginal product curve slopes downward:
A)only if the firm is a perfect competitor in the product market.
B)because of diminishing returns.
C)only if the firm is a perfect competitor in the labor market.
D)only if the firm is a perfect competitor in both the labor and product markets.

Question

Quizplus · Accepted Answer

The value of marginal product of labor (VMPL) is the additional revenue that a firm generates by hiring one more unit of labor. As the firm hires more units of labor, the marginal product of labor initially increases (due to specialization and other efficiency gains), but eventually starts to decrease due to diminishing returns to labor. This is why the VMPL curve slopes downward, and this is true regardless of whether the firm is a perfect competitor in the product or labor markets.

The Firm's Value of Marginal Product Curve Slopes Downward