Which of the following correctly explains the effect of an increase in the marginal product of labor on the labor demand curve in a perfectly competitive market?

• A. The labor demand curve shifts to the left because firms require fewer workers at each wage.
• B. The labor demand curve shifts to the right because firms are willing to hire more workers at each wage.
• C. The labor demand curve does not change, since the marginal product of labor does not affect labor demand.
• D. The labor demand curve becomes vertical, indicating that labor demand is perfectly inelastic.

Answer: (B)

Verified step by step guidance

1. Recall that in a perfectly competitive labor market, the labor demand curve is derived from the value of the marginal product of labor (VMPL), which is calculated as \(\text{VMPL} = \text{MPL} \times P\), where \(\text{MPL}\) is the marginal product of labor and \(P\) is the price of the output.
2. Understand that an increase in the marginal product of labor (MPL) means each additional worker produces more output, which raises the VMPL, making labor more valuable to firms at every wage level.
3. Since the labor demand curve represents the relationship between the wage rate and the quantity of labor demanded, an increase in VMPL shifts the labor demand curve to the right, indicating firms are willing to hire more workers at each wage.
4. Recognize that a shift to the left would imply firms want fewer workers at each wage, which contradicts the effect of an increased MPL, so this option is incorrect.
5. Note that the labor demand curve does not become vertical because labor demand is generally elastic to some degree, and the MPL directly affects labor demand, so the curve must shift rather than remain unchanged or become perfectly inelastic.