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Chapter 11: Problem 6

In a perfectly competitive market, the demand curve for labor a. slopes upward. b. slopes downward because of diminishing marginal productivity. c. is perfectly elastic at the equilibrium wage rate. d. is described by all of the above.

Short Answer

Expert verified
In a perfectly competitive market, the demand curve for labor is perfectly elastic at the equilibrium wage rate. This is because, in this market, firms have no power to influence the wage rate and must accept the market wage rate as given. The demand curve for labor also slopes downward due to diminishing marginal productivity, as the revenue generated by the marginal worker decreases as more workers are hired. Thus, the correct answer is option c.

Step by step solution

01

Option a: Slopes upward

The demand curve for labor in a market does not typically slope upward. In general, when the wage rate (price of labor) increases, firms would hire fewer workers due to the higher cost. As a result, the labor demand curve would slope downward, not upward. Therefore, option a is incorrect.
02

Option b: Slopes downward due to diminishing marginal productivity

In a perfectly competitive labor market, firms will hire more workers up to the point where the marginal productivity of the workers matches the wage rate. Essentially, firms would continue hiring until the additional revenue generated by hiring an additional worker equals the wage rate. Due to diminishing marginal productivity, the revenue generated by the marginal worker would decrease as more workers are hired. Consequently, the labor demand curve slopes downward. Option b is correct.
03

Option c: Perfectly elastic at the equilibrium wage rate

In a perfectly competitive labor market, there are many firms hiring workers, and the workers are homogeneous (identical). As a result, the individual firm would have no power to influence the wage rate and must accept the market wage rate as given. If the wage rate were above the equilibrium, there would be an excess supply of labor; in contrast, if the wage rate were below the equilibrium, there would be a labor shortage. At the equilibrium wage rate, all the firms can hire as many workers as they want without affecting the wage rate. Thus, the demand curve for labor is perfectly elastic at the equilibrium wage rate. Option c is correct.
04

Option d: Described by all of the above

Based on the analysis carried out for options a, b, and c, we have determined that the demand curve for labor in a perfectly competitive market slopes downward due to diminishing marginal productivity and is perfectly elastic at the equilibrium wage rate. Therefore, option d is incorrect as it includes the incorrect statement that the labor demand curve slopes upward. Based on the analysis above, the correct answer is: c. The demand curve for labor in a perfectly competitive market is perfectly elastic at the equilibrium wage rate.

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Most popular questions from this chapter

BigBiz, a local monopsonist, currently hires 50 workers and pays them \(\$ 6\) per hour. To attract an additional worker to its labor force, BigBiz would have to raise the wage rate to \(\$ 6.25\) per hour. What is BigBiz's marginal factor cost? a. \(\$ 6.25\) per hour b. \(\$ 12.50\) per hour c. \(\$ 18.75\) per hour d. \(\$ 20.00\) per hour

Derived demand for labor depends on the a. cost of factors of production used in the product. b. market supply curve of labor. c. consumer demand for the final goods produced by labor. d. firm's total revenue less economic profit.

To maximize profits, a monopsonist will hire the quantity of labor to the point where the marginal factor cost is equal to a. marginal physical product. b. marginal revenue product. c. total revenue product. d. any of the above.

The extra cost of obtaining each additional unit of a factor of production is called the marginal a. physical product. b. revenue product. c. factor cost. d. implicit cost.

Troll Corporation sells dolls for \(\$ 10\) each in a market that is perfectly competitive. Increasing the number of workers from 100 to 101 would cause output to rise from 500 to 510 dolls per day. Troll should hire the 101 st worker only when the wage is a. \(\$ 100\) or less per day. b. more than \(\$ 100\) per day. c. \(\$ 5.10\) or less per day. d. none of the above.
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