How does an increase in the marginal revenue product of labor affect a firm's hiring decisions in a competitive market?

When the marginal revenue product of labor increases, it means that each additional worker is generating more revenue for the firm. In a competitive market, firms want to maximize their profits, so if hiring more workers leads to higher revenue, they are likely to hire more employees. For example, if a bakery finds that adding one more baker increases sales significantly, they will consider hiring that baker to boost profits. This increase in hiring continues until the cost of hiring another worker equals the revenue that worker brings in. Therefore, a higher marginal revenue product encourages firms to expand their workforce to take advantage of the increased revenue potential.