In a perfectly competitive labor market, a firm will continue to hire additional workers as long as the marginal product of labor exceeds the wage rate paid to each worker.

In a perfectly competitive labor market, firms aim to maximize their profits by hiring workers. They look at the marginal product of labor, which is the additional output produced by hiring one more worker. If the extra output from that worker is worth more than the wage paid to them, the firm will continue to hire. For example, if a worker can produce goods worth $100 and the firm pays them $80, it makes sense for the firm to hire that worker since they are gaining $20 in profit. However, once the marginal product falls below the wage, hiring more workers would decrease profits, so the firm would stop hiring.