Consider the following statements regarding the demand for labour: 1. It is a derived demand based on the demand for the final commodity. 2. A profit-maximising firm employs labour up to the point where the extra cost of the last unit equals the additional benefit. 3. The law of diminishing marginal product is assumed to hold. Which of the statements given above is/are correct?

Correct Option The correct option is 1, 2 and 3. Explanation The demand for labour is distinct from the demand for consumer goods. It is analyzed under the Marginal Productivity Theory of Distribution. In a competitive market, firms demand labour as a factor of production to generate output, and their hiring decisions are driven by the goal of profit maximization. Statement-wise Analysis - Statement 1 is Correct: The demand for labour is a derived demand. Unlike consumer goods, labour is not demanded for its own sake but for its contribution to the production of goods and services. For instance, an increase in the demand for automobiles leads to an increase in the demand for workers in the automobile industry. - Statement 2 is Correct: A profit-maximising firm operates on the principle of marginal analysis. It will continue to employ additional units of labour as long as the additional revenue generated by the last unit (Value of Marginal Product of Labour) exceeds or equals the extra cost of hiring that unit (Wage Rate). Equilibrium is reached where Marginal Benefit = Marginal Cost. - Statement 3 is Correct: The demand curve for labour is downward sloping primarily because the Law of Diminishing Marginal Product is assumed to hold. This law states that as more units of a variable factor (labour) are added to a fixed factor (capital/land), the additional output produced by each new unit of labour eventually declines. Consequently, firms will only hire more labour if the wage rate decreases to match the lower marginal productivity. Key Takeaway Key Takeaway: Labour demand is a derived demand dependent on the final product's market. Firms determine the optimal level of employment by equating the Value of Marginal Product of Labour (VMPL) with the wage rate, assuming diminishing marginal returns.

Consider the following statements regarding the demand for… - NCERT Class 12 Economics MCQ

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

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Consider the following statements regarding the demand for labour:

It is a derived demand based on the demand for the final commodity.
A profit-maximising firm employs labour up to the point where the extra cost of the last unit equals the additional benefit.
The law of diminishing marginal product is assumed to hold.

Which of the statements given above is/are correct?

NCERT textbook question

From NCERT Introductory Microeconomics · Page 75

Options

A2 and 3 only
B1 and 2 only
C1, 2 and 3
D2 only

Did you get this right?

Solution

Correct Option

The correct option is 1, 2 and 3.

Explanation

The demand for labour is distinct from the demand for consumer goods. It is analyzed under the Marginal Productivity Theory of Distribution. In a competitive market, firms demand labour as a factor of production to generate output, and their hiring decisions are driven by the goal of profit maximization.

Statement-wise Analysis

Statement 1 is Correct: The demand for labour is a derived demand. Unlike consumer goods, labour is not demanded for its own sake but for its contribution to the production of goods and services. For instance, an increase in the demand for automobiles leads to an increase in the demand for workers in the automobile industry.
Statement 2 is Correct: A profit-maximising firm operates on the principle of marginal analysis. It will continue to employ additional units of labour as long as the additional revenue generated by the last unit (Value of Marginal Product of Labour) exceeds or equals the extra cost of hiring that unit (Wage Rate). Equilibrium is reached where Marginal Benefit = Marginal Cost.
Statement 3 is Correct: The demand curve for labour is downward sloping primarily because the Law of Diminishing Marginal Product is assumed to hold. This law states that as more units of a variable factor (labour) are added to a fixed factor (capital/land), the additional output produced by each new unit of labour eventually declines. Consequently, firms will only hire more labour if the wage rate decreases to match the lower marginal productivity.

Key Takeaway

Key Takeaway: Labour demand is a derived demand dependent on the final product's market. Firms determine the optimal level of employment by equating the Value of Marginal Product of Labour (VMPL) with the wage rate, assuming diminishing marginal returns.

Your note

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In a market with free entry and exit, if the demand curve shifts to the left: Statements: 1. Firms will enter the market to capture the lower price. 2. The market price will temporarily fall below the minimum average cost. 3. The supply will increase until the price returns to the minimum average cost. Which of the statements given above is/are correct?

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What is the primary consequence of a price ceiling accompanied by rationing?

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With reference to the supply of labour by an individual, consider the following statements: 1. An increase in wage rate always leads to an increase in the supply of labour hours by an individual. 2. At high wage rates, the income effect may dominate the substitution effect, leading to a decrease in labour supply. 3. The individual labour supply curve can be backward bending. Which of the statements given above is/are correct?

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In a perfectly competitive market, if the market price is above the equilibrium price, there will be:

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