Brief description: An increase in demand for labour may occur because the marginal cost of labour has decreased or the marginal cost of another factor may have increased.
Detailed description: The diagram shows the marginal revenue product curve which decreases eventually due to diminishing returns. The firm will employ factors up to the point where the marginal cost equals the marginal revenue product. This means that when marginal cost decreases from MClab1 to MClab2, the quantity of labour employed will increase from Q1 to Q2.
