Marginal revenue product falls as more labour is hired because
A)the price of the product must fall for a perfectly competitive firm to sell more.
B)the wage rate rises as more workers work more hours.
C)the marginal product of labour is negative as additional units of labour are hired.
D)the marginal product of labour falls as a result of the law of diminishing returns.

Question

Quizplus · Accepted Answer

The marginal product of labour falls as a result of the law of diminishing returns. As a firm hires more workers, the quantity of additional output produced by each additional unit of labour will eventually fall, leading to a lower marginal product of labour. This, in turn, causes the marginal revenue product of labour to fall as well.

Marginal Revenue Product Falls as More Labour Is Hired Because