A firm's demand curve for labor:
A) is its marginal product curve.
B) will shift to the left if the price of the output the labor is producing should fall.
C) is perfectly elastic if the firm is selling its product in a purely competitive market.
D) reflects a direct (positive)relationship between the number of workers hired and the money wage rate.

Question

Quizplus · Accepted Answer

The demand for labor is derived from the demand for the firm's output. If the price of the output falls, it reduces the marginal revenue product of labor, leading to a decrease in the demand for labor, and shifting the labor demand curve to the left. The other options are not correct because (A) marginal product curve reflects the relationship between labor input and total output, but not the demand for labor; (C) implies that the firm has no wage-setting power, which is unlikely in the real world; (D) is incorrect because the demand curve for labor slopes downward due to the diminishing marginal productivity of labor.

A Firm's Demand Curve for Labor