Answer to Question #295111 in Microeconomics for Shaaz

Question

Explain why the Marginal Revenue Product of Labour curve for a firm that competes for labour in the factor market is also the firm's demand curve for labour

Answer 1

Firms must decide how much of each input to require in addition to making output and pricing considerations. Firms have the option of requiring a wide range of inputs. Labor and capital are the most frequent.

The labor market determines the demand for and supply of labor. Workers and businesses are both participants in the labor market. Workers provide labor to businesses in exchange for pay. Workers are required to provide labor in exchange for a wage.

The firm's workforce requirement. The demand for labor by a company is derived from the demand for the company's output. If the firm's output is in more demand, it will require more labor and hire more employees. If demand for a company's output diminishes, the company will demand less labor and downsize its workforce.

Labor's marginal revenue output. When a firm evaluates the amount of demand for its production, it looks at the marginal revenue product of labor to determine how much labor to demand. The additional revenue a firm makes by employing one more unit of labor (or any input) is known as the marginal revenue product of labor (or any input). Labor's marginal revenue product is proportional to its marginal product. The value of the marginal product of labor is the firm's marginal revenue product of labor in a completely competitive market.