Abstract: With the development of industrialization and urbanization, the opportunity cost of farm labor is increasing, which will affect the farmer’s decision. Using statistic and survey data and taking mountain area of southern Ningxia as an example, based on farmer decision-making mechanism and framework of linear programming theory, an indigenous farm-household model was constructed to study the impacts of rising opportunity cost of farm labor on land use change. Results showed that under the condition of the labor market and food market function, with the rising of opportunity cost of farm labor, farm labor become one of the key factors that affected farm household’s decision-making. Namely, the labors with the greatest comparative advantage would be allocated in wage employment, and the labors with comparative disadvantage such as old man or woman would be allocated in on-farm activities. Household should prefer to purchase subsistence goods through market and plant crops with higher labor productivity such as potato and watermelon et al. Some land, especially consolidated land was abandoned. The farm-household model could explain the making-decision behavior of household land use.