Answer to Question #295110 in Microeconomics for Shaaz

Question

Discuss the relevance of marginal revenue productivity theory in wage determination within contemporary, real-world labour markets.

Answer 1

The marginal revenue productivity theory of labour is simply the change in a company's total revenue when one more worker is employed. In other words, it is the extra income realized due to the selling of one more product. Therefore, one more worker is recruited and the firm's total revenue shows a great positive change, the manager can find a reason to increase wages of the workers. Additionally, if workers agree to work extra hours such that the marginal revenue increases, their wages are also likely to increase. Therefore, marginal revenue productivity theory is relevant in wage determination within contemporary, real-world labour markets.