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Answer to Question #35262 in Microeconomics for Zephaniah William

Question #35262
How far the economic theory of wages(mrp theory) affect the wages of agricultural labourer and hotel manager?
Expert's answer
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
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.

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