the theory of marginal productivity of labour

Question 1

what is the theory of marginal productivity of labour?

Answer 1

the theory of marginal productivity of labour states that the demand for workers depends on their marginal revenue product (MRP)

Question 2

what does the marginal productivity of labour theory assume?

Answer 2

the marginal productivity of labour theory assumes:

• workers are homogenous
• firms have no buying power
• trade unions have no impact on the available labour supply
• the physical productivity of each worker can be accurately and objectively measured
• the market value of the output produced by the labour force can be calculated
• the industry supply of labour is assumes to be perfectly elastic

Question 3

what does it mean by the industry supply of labour is perfectly elastic?

Answer 3

the industry supply of labour being perfectly elastic means that workers are occupationally and geographically mobile and can be hired at a constant wage rate

Question 4

what is marginal physical product?

Answer 4

marginal physical product is the change in total output arising from hiring one more worker

Question 5

what is marginal revenue product?

Answer 5

marginal revenue product is the value of the physical addition to output arising from hiring one extra unit of labour

Question 6

what is the diagram for labour?

Answer 6

the diagram for labour

Question 7

what shifts the demand curve for labour?

Answer 7

shifts in the demand curve for labour arises from:

• a change in labour productivity (MPP)
• a change in demand for the final product
• a change in the price of a substitute input / a change in technology