The labour demand curve of a business in a perfectly competitive labour market:
A)slopes downward because the elasticity of demand is always less than unity
B)slopes downward because of declining marginal product
C)is perfectly elastic at the prevailing wage rate
D)slopes downward because of diminishing marginal utility
E)slopes upward because of the business's ability to set its resource price

Question

Quizplus · Accepted Answer

In a perfectly competitive labour market, the labour demand curve of a business slopes downward because of the declining marginal product. As the business hires more and more workers, the marginal product of each additional worker decreases, which means that the business will be willing to pay a lower wage for each additional worker. This results in a downward-sloping labour demand curve.

The Labour Demand Curve of a Business in a Perfectly