In a competitive labor market, how does a firm determine the optimal level of labor to hire to maximize profit, considering the relationship between labor demand, marginal cost, and labor market equilibrium?

In a competitive labor market, a firm determines the optimal level of labor to hire by looking at the relationship between the wage it pays and the additional output that each worker can produce, known as marginal product. To maximize profit, the firm will continue hiring workers until the cost of hiring one more worker (the wage) equals the extra revenue that worker generates (the marginal revenue product). For example, if hiring an additional worker costs $15 and that worker produces $20 worth of goods, the firm will benefit from hiring that worker. However, if the next worker would only generate $10 in revenue, hiring them would reduce profit. Therefore, the firm finds the right balance by hiring until the cost of labor matches the value of the production it contributes.