An individual firm's demand for a factor of production ?
Correct answer: B. Slopes downward due to the factor's diminishing marginal product
- A. Slopes downward because an increase in the production of output reduces the price at which the output can be sold in a competitive market, thereby reducing the value of the marginal producing the value of the marginal product as more of the factor is use
- B. Slopes downward due to the factor's diminishing marginal product
- C. slopes upward due to the factor's increasing marginal product
- D. is perfectly elastic (horizontal) if the factor market is perfectly competitive
Explanation
A firm's factor demand slopes downward because the factor's marginal product normally diminishes as more of it is employed, reducing its value at the margin. Perfect competition in the factor market makes the firm's factor supply, not its demand, horizontal.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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