The Competitive Firm's Decision to Hire Labor

For a competitive firm, such as a mango orchard, the value of the marginal product curve or VMP_L  is the labor-demand curve.

This firm faces a perfectly elastic supply curve of labor, which means that the wage rate is given and does not change with the number of workers hired. This is because the labor market is assumed to be perfectly competitive.

Suppose a wage of 80 dollars per day is paid, which is the additional cost of hiring a worker.

With one worker, VMP_L is 200 dollars. The wage rate is 80 dollars, leading to a marginal profit of 120 Dollars.

The firm hires additional workers as long as the revenue earned from the additional worker or VMP_L exceeds or equals the additional cost of that worker, which is W.

The hiring stops at the fourth worker, as it is not profitable to hire more workers.

Graphically, this profit-maximizing point of labor employment is demonstrated where the VMP_L curve intersects the market wage line, illustrating the competitive firm's decision to hire labor.