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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. Holding everything else constant, if the demand for this firm's product decreases:
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

Use the following to answer questions:
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. Holding everything else constant, if the demand for this firm's product decreases:
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.

Quizplus · Accepted Answer

If the demand for the firm's product decreases, the value of marginal product (VMP) of labor decreases, causing the VMP curve to shift to the left, leading the firm to hire fewer workers.

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