employment increases.

Demand for Labor in Perfectly Competitive Output Markets

The question for any firm is how much labor to hire.

We can define a Perfectly Competitive Labor Market as one where firms can hire all the labor they want at the

going market wage. Think about secretaries in a large city. Employers who need secretaries can probably hire

as many as they need if they pay the going wage rate.

Graphically, this means that firms face a horizontal supply curve for labor, as Figure 14.3 shows.

Given the market wage, profit maximizing firms hire workers up to the point where: Wmkt = VMPL

FIGURE 14.4 Equilibrium Employment for Firms in a Competitive Labor Market In a perfectly competitive labor

market, firms can hire all the labor they want at the going market wage. Therefore, they hire workers up to the point
L1 where the going market wage equals the value of the marginal product of labor.

Access for free at openstax.org
14.1 • The Theory of Labor Markets 329
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