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

Question

Quizplus · Accepted Answer

The labor demand curve shows the quantity of labor that firms are willing to hire at different wage rates. In a perfectly competitive factor market, each firm hires labor up to the point where the value of the marginal product (VMP) of labor equals the wage rate. Therefore, the labor demand curve for the industry as a whole is the horizontal sum of all firms' VMP curves. This is because, at any given wage rate, each firm will hire the quantity of labor where its VMP curve intersects the wage rate, and aggregating these quantities horizontally gives us the industry's total demand for labor at that wage rate.

The Labor Demand Curve in a Perfectly Competitive Factor Market