The marginal revenue productivity theory of wages, also referred to as the marginal revenue product of labor and the value of the marginal product or VMPL, is the change in total revenue earned by a firm that results from employing one more unit of labor. It is a neoclassical model that determines, under some conditions, the optimal number of workers to employ at an exogenously determined market wage rate.
The idea that payments to factors of production equilibrate to their marginal productivity had been laid out early on by such as John Bates Clark and Knut Wicksell, who presented a far simpler and more robust demonstration of the principle. Much of the present conception of that theory stems from Wicksell's model.
The marginal revenue product (MRP) of a worker is equal to the product of the marginal product of labor (MP) and the marginal revenue (MR), given by MR×MP = MRP. The theory states that workers will be hired up to the point where the Marginal Revenue Product is equal to the wage rate by a maximizing firm, because it is not efficient for a firm to pay its workers more than it will earn in revenues from their labor.
Read more about Marginal Revenue Productivity Theory Of Wages: Mathematical Relation, Marginal Revenue Product in A Perfectly Competitive Market, MRP in Monopoly or Imperfect Competition
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