Question

To what extent does Marginal revenue theory explain wage determination in your country

Answer 1

Answer:

The marginal productivity theory of wage states that the price of labour, i.e., wage rate, is determined according to the marginal product of labour. This was stated by the neo­classical economists, especially J. B. Clark, in the late 1890s.

The term marginal product of labour is interpreted here in three ways: marginal physical product of labour (symbolized by MPPL), value of the marginal product of labour (symbolized by VMPL) and marginal revenue product of labour (symbolized by MRPL).

When marginal product of labour is expressed in money terms we obtain VMPL. MRPL is the change in total revenue following a change in the employment of labour. Marginal productivity theory of wage states that wage of labour equals VMPL (= MRPL). Employer will employ labour up to the point until market wage equals labour’s value of the marginal product (VMP) and marginal revenue product (MRP).