Chapter 13R, Problem 19MCQ

To determine

The correct option that defines the demand curve for labor if the firm were former monopolist and experiences the competition after entering the market.

Answer to Problem 19MCQ

Option b is correct.

Explanation of Solution

Explanation for correct option:

b.

Demand curve for such firm will be similar to that of perfect competition, which means that demand curve will become more elastic. More elastic demand curve means if there is the slight change in the market prices then the demand will change with greater impact. Therefore, option b is correct.

Explanation for incorrect options:

a.

There will be change in demand curve as the firm was working as monopolist which now lost its market power and entered the competitive market. Therefore, option a is incorrect.

c.

Demand curve will become more elastic rather than being less elastic Therefore, option c is incorrect.

d.

Diminishing marginal returns occur if more labor is hired which result into reduction into marginal returns or output. Therefore, option d is incorrect.

e.

In this question, the firm changed its market structure from monopolist to perfect competition but diminishing marginal returns prevail in all type of market structure depending upon the number of workers hired as per the change in output. Therefore, option e is correct.

Economics Concept Introduction

Product market and factor market: Market place where goods and services are traded is referred as product market whereas a place where factor of productions are traded is termed as factor market.

Factor of production: Factor of production refers to the components or the resources that are required for producing intangible or tangible products.

Factor income: Factor income refers to returns received by the producer for inserting each factor of production as an input.