- Firms demand inputs based on the demand for the outputs those inputs can produce. Inputs are complementary or substitutable, and subject to diminishing returns. - A firm will demand an input as long as its marginal revenue product exceeds its cost. For a single variable input like labor, the firm's demand curve is the marginal revenue product curve. - When a firm uses multiple variable inputs, a change in input price causes substitution and output effects that impact factor demand. The firm will substitute cheaper factors for more expensive ones.