Which of the following is NOT true about the demand for labor in a perfectly competitive market?

• A. Firms hire labor up to the point where the wage equals the marginal revenue product of labor.
• B. An increase in the price of the final product will increase the demand for labor.
• C. The demand for labor is derived from the demand for the final product.
• D. The demand for labor is independent of the productivity of labor.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of labor demand in a perfectly competitive market. Labor demand is a derived demand, meaning it depends on the demand for the final product that labor helps produce.
2. Step 2: Recall that firms hire labor up to the point where the wage rate (W) equals the marginal revenue product of labor (MRP_L). The marginal revenue product of labor is calculated as \(MRP_L = M P_L \times P\), where \(M P_L\) is the marginal product of labor and \(P\) is the price of the final product.
3. Step 3: Recognize that an increase in the price of the final product (\(P\)) raises the marginal revenue product of labor, which in turn increases the demand for labor, since firms are willing to pay more for labor that produces a more valuable output.
4. Step 4: Understand that the productivity of labor (marginal product of labor) directly affects the marginal revenue product of labor. If labor becomes more productive, \(M P_L\) increases, raising \(MRP_L\) and thus increasing labor demand.
5. Step 5: Conclude that the statement 'The demand for labor is independent of the productivity of labor' is NOT true, because labor demand depends on both the productivity of labor and the price of the final product.