The demand curve for a factor is:A.the factor's marginal physical curve.B.the factor's marginal-physical-product curve.C.upward sloping.D.fixed in a perfectly competitive market.E.the factor's marginal-revenue-product curve.
Question
The demand curve for a factor is:A.the factor's marginal physical curve.B.the factor's marginal-physical-product curve.C.upward sloping.D.fixed in a perfectly competitive market.E.the factor's marginal-revenue-product curve.
Solution
The demand curve for a factor is E. the factor's marginal-revenue-product curve.
Here's why:
In economics, the demand curve for a factor of production like labor, land, or capital, is determined by how much additional revenue a firm can generate by employing an additional unit of that factor. This is known as the marginal revenue product (MRP) of the factor.
The MRP is calculated by multiplying the marginal physical product (MPP) of the factor by the marginal revenue (MR) of the output. The MPP refers to the additional output that can be produced by employing an additional unit of the factor, while the MR refers to the additional revenue that can be generated by selling that additional output.
Therefore, the demand curve for a factor is downward sloping, reflecting the law of diminishing returns. As a firm employs more of a factor, the MPP of the factor tends to fall, which in turn causes the MRP and hence the demand for the factor to fall.
So, the correct answer is E. the factor's marginal-revenue-product curve.
Similar Questions
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