13-1 , if the product price rises from $5 to $10, the MRP curve shifts to
the right (even though the MP curve does not move). For imperfectly
competitive firms, an increase in MR occurs if the demand curve faced by
those firms shifts to the right. In both cases, the increase in MR leads to a
rightward shift in the factor’s MRP curve and thus to an increase in the
demand for the factor.
Anything that leads to an increase in demand for a product will lead to an increase in demand
for the factors used to produce that product.A Complication
As we said earlier, the market demand curve for a factor is not simply
horizontal summation of all firms’ factor demand curves. As all firms hire
more of any specific factor of production, the supplies of the goods
produced by that factor increase and the prices of these products fall. This
decline in product prices leads firms to increase their hiring of the factors
by less than would otherwise occur. The result is that the market demand
curve for any specific factor of production is less elastic than would be the
case if we took a simple horizontal summation of the individual firms’
factor demand curves. In other words, the market factor demand curve is
steeper than what would result from a horizontal summation of all the
firms’ individual MRP curves.
An example will clarify this point. Consider a competitive furniture-
building industry and the individual firms’ demand for carpenters. Any
one firm’s production of furniture will have no significant effect on the
equilibrium price of furniture, and so its hiring of carpenters similarly has