How does value of marginal product (VMP) of labor determine the number of workers a competitive firm will hire?
A firm's goal is to maximize profits. Hiring an extra person-hour increases the employer's profit as long as VMP, which is an employer's demand curve for labor, exceeds the wage. As the supply curve of labor to a competitive firm is horizontal at the market wage rate, the profit-maximizing amount to hire is given by the point where the VMP is equal to the wage rate.
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