What does a profit-maximizing competitive firm experience when the marginal product of labour is diminishing

Question

Quizplus · Accepted Answer

When the marginal product of labour is diminishing, it means that each additional unit of labour hired is adding less and less to the total output. Therefore, the firm would not be willing to pay higher wages for additional units of labour, leading to a downward-sloping demand for labour. This is because the firm would want to hire less labour to keep the production costs low and maintain its profit-maximizing output level. So, option C is the correct answer. A and B are incorrect because they do not capture the relationship between diminishing marginal product and the behaviour of labour supply. D is incorrect because it implies that the firm is willing to pay higher wages for additional units of labour, which is not the case when the marginal product of labour is diminishing.

What Does a Profit-Maximizing Competitive Firm Experience When the Marginal