The labor-demand curve of a purely competitive seller Multiple Choice Is perfectly elastic because the firm is hiring an Insignificant portion of the total labor supply. slopes downward because the firm must lower price to sell more output. slopes downward because labor productivity Increases as successive workers are hired. slopes downward because the marginal product of successive workers declines.
The Correct Answer and Explanation is:
Correct Answer: slopes downward because the marginal product of successive workers declines.
Explanation:
In a purely competitive market, the labor-demand curve for a firm is downward-sloping due to the law of diminishing marginal returns. This economic principle states that, as more units of a variable input (in this case, labor) are added to a fixed amount of other inputs (like capital or land), the additional output produced by each new worker eventually decreases. This reduction in the marginal product of labor (MPL) causes the marginal revenue product (MRP) of labor to decline as more workers are hired.
The marginal revenue product of labor is calculated by multiplying the marginal product of labor by the product price. In perfect competition, product price is constant, so the MRP curve also declines solely due to the diminishing marginal product. As a result, firms will hire additional workers only if the wage rate is equal to or less than the MRP of the last worker hired. This leads to a downward-sloping labor-demand curve.
It is important to distinguish this from a shift in the demand curve. The shape of the demand curve is affected by the marginal productivity of labor, while shifts in the curve result from changes in product demand, technological advancements, or increases in other factors of production.
The other options are incorrect because:
- The curve is not perfectly elastic; that would imply an infinite response to wage changes, which is unrealistic in the labor market.
- The firm in a purely competitive market does not set prices, so it does not need to lower price to sell more output.
- Labor productivity does not increase with more hires in the short run; instead, it typically decreases due to overcrowding or limited resources.
Therefore, the labor-demand curve slopes downward due to the declining marginal productivity of additional labor.
