Question

(1) (2) (3) Units of Quantity of Product Factor X Output Price Marginal Revenue Product O 0 $12 1 10 $12 (A) 2 18 $12 (B) 3 25 $12 (C) 4 28 $12 (D) For this firm, the demand curve for factor Xis downward-sloping. upward-sloping horizontal vertical There is not enough information given to determine the shape of the factor X demand curve.

Answer 1

Marginal Product of X at

1 unit = 10

2 units = 8

3 units = 7

4 units = 3

Marginal Revenue Product of Factor X @ of $12

1 unit = A = 10 * $12 = $120

2 units = B = 8 * $12 = $96

3 units = C = 7 * $12 = $84

4 units = D = 3 * $12 = 36

Option A Downward Sloping.

With the increase in output the Marginsl Revenue Product of Factor X is decreasing. Because the marginal revenue product curve is negatively sloped due to the law of diminishing marginal returns, so too is the firm's factor demand curve. A perfectly competitive firm's factor demand curve is that negatively-sloped portion of its marginal revenue product curve.