Question

Which of the following statements is correct?

• A. The demand for labour comes from producers
• B. Demand of labour depends on its productivity
• C. \( MP_L = TP_L - TP_{L-1} \)
• D. All of these

Hint:

Remember that the demand for any factor of production (like labour) is a derived demand, meaning it depends on the demand for the final product and the factor's productivity.

Answer 1

The Correct Option is D

Let's analyze each statement:

(A) The demand for labour comes from producers: This is correct. Firms (producers) hire labour as an input to produce goods and services. Households supply labour.
(B) Demand of labour depends on its productivity: This is also correct. The demand for labour is a derived demand; it depends on the value of the goods that labour helps produce. A firm will hire a worker only if the additional revenue generated by that worker (their Marginal Revenue Product, which depends on productivity) is greater than or equal to their wage.
(C) \( MP_L = TP_L - TP_{L-1} \): This is the correct formula for the Marginal Product of Labour (\(MP_L\)). It measures the additional output (\( \Delta TP \)) produced by hiring one more unit of labour (\( \Delta L = 1 \)). Here, \(TP_L\) is the total product with L units of labour, and \(TP_{L-1}\) is the total product with L-1 units.
Since all three statements are correct principles in economics, the answer is (D).