Scenario: The Decision to Hire Labor Assume that both the product market and the labor market are perfectly competitive.The price of this firm's product is $5.The firm's total product with respect to labor is given in the table that follows.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire Labor.Look at the scenario The Decision to Hire Labor.Holding everything else constant, if the demand for this firm's product decreases, then:
A)its value of marginal product curve shifts to the right and it will hire more workers.
B)its value of marginal product curve shifts to the left and it will hire more workers.
C)its value of marginal product curve shifts to the left, and it will hire fewer workers.
D)the firm will not change its hiring, since it is a perfectly competitive firm.

Question

Quizplus · Accepted Answer

If the demand for the firm's product decreases, this will cause a decrease in its revenue, resulting in a decrease in its value of marginal product (VMP) for labor. This means that the VMP curve will shift to the left, indicating a lower productivity of each additional worker hired. As a result, the firm will hire fewer workers to maintain its profit-maximizing level of labor employment.

Scenario: the Decision to Hire Labor Assume That Both the Product