The short-run labor demand curve of a competitive firm is:
A)its average revenue product curve
B)its marginal revenue product curve,provided marginal product is below average product
C)its marginal product curve
D)stage II of the total product curve

Question

Quizplus · Accepted Answer

The marginal revenue product curve represents the additional revenue generated by hiring another unit of labor. In a perfectly competitive market, the firm is a price taker and has a horizontal demand curve for its product. Therefore, the marginal revenue product curve is also the firm's demand curve for labor. However, if the marginal product of labor is below the average product, then each additional unit of labor would add less to total output than the previous unit, which would decrease the marginal revenue product or the value of the output produced by each unit of labor. Therefore, the short-run labor demand curve of a competitive firm is equivalent to its marginal revenue product curve, provided marginal product is below average product.

The Short-Run Labor Demand Curve of a Competitive Firm Is