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Wage Determination in a Competitive Labour Market
A firm, being a price-taker in the factor market, cannot influence the factor price no matter how many units of factor it hires. *The firm facing a perfectly elastic supply curve of labour in a competitive labour market. To maximize wealth, firm must employ labour up to the point at which VMPL is equal to MCL (VMPL = MCL or W*).
The equilibrium wage W* and equilibrium employment level L* in the whole labour market are determined at the intersection of the market supply curve of labour and the market demand curve for labour.
