An increase in a perfectly competitive firm's demand for labour could be caused by
A) a decrease in the market wage rate.
B) an increase in the market demand for the firm's product.
C) a decrease in the marginal product of workers.
D) an increase in the quantity of labour supplied.

Question

Quizplus · Accepted Answer

An increase in the market demand for the firm's product would mean that the firm is producing and selling more, which would require more workers to meet the increased demand. This would cause an increase in the demand for labour. A decrease in the market wage rate (A) would decrease the cost of hiring workers but would not necessarily increase demand for labour. A decrease in the marginal product of workers (C) would actually decrease demand for labour as it would mean that each worker is producing less, making them less valuable to the firm. An increase in the quantity of labour supplied (D) is a movement along the demand curve for labour and would not cause an increase in demand.

An Increase in a Perfectly Competitive Firm's Demand for Labour