The quantity demanded of a factor (say labor)at a specified wage is that quantity of labor whose marginal revenue product just equals the specified wage.

Question

Quizplus · Accepted Answer

This statement is true according to the neoclassical theory of labor demand. The marginal revenue product of labor is the additional revenue or output generated by the last unit of labor employed, while the wage rate is the cost of that labor to the firm. In the short run, a firm will hire labor up to the point where the marginal revenue product of labor equals the wage rate, since hiring any more workers would mean a lower profit margin for the firm.

The Quantity Demanded of a Factor (Say Labor)at a Specified