Share This Article:

Economic Definition of factor demand and marginal revenue product. Defined.

Offline Version: PDF

Term factor demand and marginal revenue product Definition: For a firm that hires the services of a factor in a perfectly competitive factor market, the factor demand curve is that portion of the marginal revenue product curve that lies below the average revenue product curve. The relation between marginal revenue product and factor demand for a perfectly competitive firm is comparable to the relation between marginal cost and short-run supply. A perfectly competitive firm maximizes profit by hiring the quantity of a factor that equates factor price and marginal revenue product. As such, the firm moves along it's marginal revenue product curve in response to alternative factor prices.


« factor demand | factor demand curve »


Alphabetical Reference to Over 2,000 Economic Terms