In a competitive labor market, each firm hires its employees on the basis of where the market equilibrium wage equals the firm's marginal revenue product (MRP_L).

Question

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In a competitive labor market, firms hire employees up to the point where the market equilibrium wage equals the marginal revenue product of labor, ensuring that they are hiring workers in the most cost-effective manner. This principle ensures that the cost of hiring an additional worker (the wage) is equal to the additional revenue generated by that worker, optimizing the firm's labor force.

In a Competitive Labor Market, Each Firm Hires Its Employees