The demand curve for a variable factor is always
A)that factor's marginal cost curve.
B)that factor's MRP curve.
C)that factor's MP curve.
D)steeper than that factor's MRP curve.
E)flatter than that factor's MRP curve.

Question

Quizplus · Accepted Answer

The demand curve for a variable factor is always that factor's marginal revenue product (MRP) curve. This is because the MRP curve represents the additional revenue generated by employing an additional unit of the factor, and this is precisely what the firm takes into account when deciding how much of the factor to hire. The MP curve represents the additional output generated by employing an additional unit of the factor, but this does not directly translate into revenue unless we know the product price. The marginal cost curve, on the other hand, represents the additional cost incurred by employing an additional unit of the factor, which is not the same as the additional revenue generated. The demand curve for a variable factor is not necessarily steeper or flatter than the MRP curve.

The Demand Curve for a Variable Factor Is Always