For a firm that is competitive in both product and factor markets,the value of the marginal product of labor:

Question

Quizplus · Accepted Answer

As more and more workers are hired, the marginal product of labor begins to decline due to diminishing returns. This leads to a decrease in the value of the marginal product of labor for the firm, even if they are competitive in both product and factor markets. This decrease in value will eventually lead to a decline in the wage rate offered by the firm, all else equal. Therefore, the labor supply curve will slope upward as workers demand a higher wage to compensate for the decreasing value of their marginal product. Choice A is incorrect because the value of the marginal product of labor is not necessarily constant. Choice B is incorrect because the marginal product of labor eventually diminishes. Choice D is incorrect because there is no necessary relationship between changing product price and the marginal product of labor.

For a Firm That Is Competitive in Both Product and Factor