Which of the following best describes the relationship between the marginal revenue product (MRP) curve for labor and the demand curve for labor in a competitive market?

• A. The MRP curve for labor is identical to the demand curve for labor.
• B. The MRP curve for labor is unrelated to the demand curve for labor.
• C. The MRP curve for labor lies above the demand curve for labor at all levels of employment.
• D. The MRP curve for labor is always below the demand curve for labor.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definition of Marginal Revenue Product (MRP) of labor. MRP is the additional revenue generated from employing one more unit of labor, calculated as \(\text{MRP} = \text{Marginal Product of Labor (MPL)} \times \text{Price of Output (P)}\).
2. Step 2: Recognize that in a competitive product market, the price of output (P) is constant, so the MRP curve depends directly on the MPL curve multiplied by this constant price.
3. Step 3: Recall that the demand curve for labor represents the quantity of labor firms are willing to hire at different wage rates, which is derived from the value of the marginal product of labor (i.e., the MRP).
4. Step 4: Since firms hire labor up to the point where the wage rate equals the MRP, the MRP curve effectively shows the maximum wage firms are willing to pay for each quantity of labor, making it the labor demand curve.
5. Step 5: Conclude that the MRP curve for labor and the demand curve for labor are identical in a competitive market because both represent the relationship between the wage rate and the quantity of labor demanded.