Question

For a firm operating in a perfectly competitive labor market, but an imperfectly competitive output market, the short-run labor demand curve is downward sloping due to:

	A.	the law of diminishing returns.
	B.	the decrease in marginal revenue that occurs when output rises.
	C.	both of the above are correct.
	D.	None of the above is correct.

Answer 1

The demand curve is downward sloping and the reason befined it is the law of diminishing returns.

This is because as more workers are hired, the marginal product of labor starts decreasing and this leads to the fall in the marginal revenue product of labor.

Hence it can be said that for a firm operating in a perfectly competitive labor market, but an imperfectly competitive output market, the short-run labor demand curve is downward sloping due to the law of diminishing returns.

Hence option A is the correct answer.