Marginal revenue productivity theory of wages is a neoclassical model that determines, under some conditions, the optimal number of workers to employee at an exogenously determined market wage rate.
The marginal revenue product (MRP) of a worker is equal to the product of the marginal product or labour (MP) and the marginal reveneue (MR), given by MR.MP = MRP. The theory states that workers will be hired at the point when the Marginal Revenue Product is equal to the wage rate.
There are two method of calculating MRP, one is change in total revenue over change in number of the additional worker, anther one is marginal product(MP) multiply marginal revenue(MR). In economics, the marginal product or marginal physical product of an input to production during a specific time period is as follows, assuming that no other inputs to production change: marginal product of X used in producing Y = ÎY/ÎX = (the change of Y)/(the change of X). ... Marginal Revenue is the extra revenue that an additional unit of product will bring a firm. ...
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