Question

What determines a competitive firm’s demand for labor?

Answer 1

Value of marginal product of labor is the demand curve for labor

We know in perfect competition, Price=marginal revenue

And MPL is the change in output due to an additional labor hired

Thus VMPL=MRPL is the value of Goods produced by hiring an additional labor

And equilibrium is achieved when the benefit of additional labor=cost

Thus wage=VMPL is the labor market equilibrium

Thus VMPL is the labor demand curve and its downward sloping because of law of variable proportion which states that MPL of decreases as more labor is employed. Thus VMPL is downward sloping