The demand curve for each factor of production equals the value of the marginal product of that factor.

Question

Quizplus · Accepted Answer

This is known as the "value of marginal product" (VMP) theory, which states that the demand for a factor of production depends on its marginal product (the extra output produced by an additional unit of the factor) and the price of the output. If the value of the marginal product is high, the demand for the factor will be high, and vice versa. Therefore, the demand curve for each factor of production is determined by the VMP of that factor.

The Demand Curve for Each Factor of Production Equals the Value