Final answer:
When the labor demand shifts out, the Marginal Product of Labor (MPL) generally remains unchanged unless there's a change in productivity, while the Value of the Marginal Product of Labor (VMPL) increases due to the higher value of the firm's output. The firm will hire labor up to the point where the value of the marginal product equals the marginal cost of labor for profit maximization.
Step-by-step explanation:
When the labor demand shifts out, it indicates that at each wage, firms are willing to hire more labor. This could be due to an increase in the firm's production or changes in the market conditions that increase the demand for the firm's product. The Marginal Product of Labor (MPL) reflects the additional output produced by an additional unit of labor. It is important to understand that the MPL typically declines as more labor is employed, due to the law of diminishing returns.
However, a shift out in labor demand does not necessarily change the MPL itself, assuming that the productivity of labor has not changed. Rather, what changes is the Value of the Marginal Product of Labor (VMPL) and potentially the Marginal Revenue Product (MRP). The VMPL is the product of the marginal product of labor and the market price of the output. If the demand for labor shifts outward due to an increase in product demand (reflected by a higher market price), the VMPL will rise because each unit of labor's output is now more valuable.
Lastly, if the firm operates in a competitive output market, the VMPL is simply equal to the price multiplied by the MPL. In contrast, firms with market power will see their VMPL equal to the marginal revenue (MR) multiplied by the MPL, where MR declines with additional output sold.
Thus, with an increase in labor demand, the VMPL will increase, but the MPL will remain unchanged unless there are direct changes in productivity. The firm will continue to hire more workers until the cost of hiring one more worker (the marginal cost of labor, MCL) equals the VMPL or MRP for profit maximization.