For profit-maximizing, competitive firms, the demand curve for each factor of production equals the value of the marginal product of that factor.

Question

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In a competitive market, a profit-maximizing firm will hire factors of production up to the point where the value of the marginal product (VMP) of each factor equals its price. The VMP is the additional revenue generated by employing one more unit of the factor, and it determines the demand curve for each factor of production.

For Profit-Maximizing, Competitive Firms, the Demand Curve for Each Factor