A profit-maximising competitive firm that experiences diminishing marginal product of labour must also be experiencing:

Question

Quizplus · Accepted Answer

Since the firm experiences diminishing marginal product of labour, the additional output produced by each additional unit of labour decreases. Therefore, the firm will only hire additional units of labour if the wage rate is lower than the marginal product of labour. As the wage rate increases, the firm will hire fewer units of labour, resulting in a downward-sloping demand for labour curve.

A Profit-Maximising Competitive Firm That Experiences Diminishing Marginal Product of Labour