Decreasing marginal productivity and the need to lower the price of a product to increase the quantity demanded in all but purely competitive markets cause the individual firm's demand curve for labor to be downward sloping.

Question

Quizplus · Accepted Answer

The individual firm's demand curve for labor is downward sloping due to the law of diminishing marginal returns (decreasing marginal productivity) and the need to lower the price of additional units of output to sell them in imperfectly competitive markets, which reduces the marginal revenue product of labor.

Decreasing Marginal Productivity and the Need to Lower the Price