To study the demand for labour by a single firm, which of the following assumptions are made?
(A) Labour is the only variable factor of production.
(B) The labour market is perfectly competitive.
(C) The firm is perfectly competitive and aims at maximum profit.
(D) Given the technology, the law of increasing marginal product holds.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
(A) Labour is the only variable factor of production. — Correct. The firm can change only the amount of labour; its other inputs stay fixed.
(B) The labour market is perfectly competitive. — Correct. A perfectly competitive labour market means each firm takes the wage as given.
(C) The firm is perfectly competitive and aims at maximum profit. — Correct. The firm is a perfectly competitive one that produces to maximise profit.
(D) Given the technology, the law of increasing marginal product holds. — Incorrect. The assumption is the law of diminishing marginal product. It is what makes the demand curve for labour slope down.
NCERT (2026-27): “Wage Determination in Labour Market … To examine the demand for labour by a single firm, we assume that the labour is the only variable factor of production and the labour market is perfectly competitive, which in turn, implies that each firm takes wage rate as given. Also, the firm we are concerned with, is perfectly competitive in nature and carries out production with the goal of profit maximisation. We also assume that given the technology of the firm, the law of diminishing marginal product holds.” |