The marginal revenue productivity theory of wages is a model of wage levels in which they set to match to the marginal revenue product of labor,
In a model, this is justified by an assumption that the firm is profit-maximizing and thus would employ labor only up to the point that marginal labor costs equal the marginal revenue generated for the firm.
The theory states that workers will be hired up to the point when the marginal revenue product is equal to the wage rate.
If the marginal revenue brought by the worker is less than the wage rate, then employing that laborer would cause a decrease in profit.
The idea that payments to factors of production equal their marginal productivity had been laid out by John Bates Clark and Knut Wicksell in simpler models.
Please define each and every variable and include their dimension] The change in output is not limited to that directly attributable to the additional worker.
— mathematically until Under perfect competition, marginal revenue product is equal to marginal physical product (extra unit of good produced as a result of a new employment) multiplied by price.
It does not have to lower the price in order to sell additional units of the good.
Firms operating as monopolies or in imperfect competition face downward-sloping demand curves.