Figure 13-1 From Marginal Product to Demand Curve
The Firm’s Demand Curve for a Factor
Now that we have determined the firm’s profit-maximizing decision
about how much of a factor to employ given a specific factor price (w
and a specific output price (p), we can derive the firm’s entire demand
curve for the factor. How much will the firm hire at each factor price?
The MRP Curve Is the Factor Demand Curve
Part (i) of Figure 13-1 shows a marginal product curve, just as we saw in
Chapter 7. The curve is downward sloping because of the law of
(eventually) diminishing returns; as the firm adds further units of the
variable factor to a given quantity of the fixed factor, the marginal product
of the variable product will decrease. (Note that for simplicity we show
only the downward-sloping portion of the MP curve—the portion after
diminishing returns set in.)