For a firm selling output in an imperfectly competitive market,its labor demand curve will:
A)reflect the value of marginal product schedule,provided the firm is operating in the zone of production
B)decline solely because of diminishing marginal productivity
C)decline because of diminishing marginal productivity and because product price declines as output increases
D)be perfectly elastic if the firm is hiring labor competitively

Question

Quizplus · Accepted Answer

In an imperfectly competitive market, the firm has some degree of market power, which allows it to affect the product price. As the firm increases output, product price will decline due to market saturation, which causes the marginal revenue of each additional unit to decrease. This reduction in product price will lower the marginal revenue product of labor curve, and thus the labor demand curve will decline. Additionally, the law of diminishing marginal productivity also causes the labor demand curve to slope downward, as each additional worker hired will contribute less and less to the firm's output. Therefore, the correct answer is C since the labor demand curve will decline due to both factors.

For a Firm Selling Output in an Imperfectly Competitive Market,its