Firms hire additional workers?

Question

Firms will hire additional workers as long as the wage:

is less than the marginal product of labour

equals the marginal product of labour

is greater than the marginal product of labour

is less than the value of the marginal product of labour

Answer 1

Firms will hire additional workers as long as the wage is less than the value of the marginal product of labor.

Theres an important distinction between marginal product of labor (MP-L) and the Value of the marginal product of labor (VMP-L). MP-L is measured in units of products while VMP-L is MP-L multiplied by the price of the product, this yields the value of these products. Thats why VMP-L is the relevant one when comparing with wages.

Wage is the marginal cost of a product and VMP-L is the marginal revenue of a product.

As long as the cost (wage) is lower than the revenue (VMP-L) an additional worker will provide the firm will have reason to hire more additional workers.