Similarly one may ask, how is the demand for labor derived from the VMPL?
As the number of workers employed falls, the marginal product of labor rises due to the diminishing marginal product of labor. The value of the marginal product rises because VMPL = P * MPL (and either P or MPL have risen to cause the demand for labor to rise).
Similarly, what are the determinants of labor demand? Labor Demand
- Available technology (marginal productivity of labor)
- The skills or education of the workforce (marginal productivity of labor)
- Level of physical capital (marginal productivity of labor)
- Price of physical capital (price of output)
- Price of substitute or complement goods (price of output)
Subsequently, one may also ask, how do you explain derived demand?
Derived demand is an economic term that refers to the demand for a good or service that results from the demand for a different, or related, good or service. Derived demand is related solely to the demand placed on a product or service for its ability to acquire or produce another good or service.
Why is MRP downward sloping?
downward sloping. This is because of the law of diminishing marginal returns which states that if a firm increases the amount of one input (in this case labor) while holding the quantity of other inputs constant, the marginal product of the extra input will decline over time.
