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MPP and MRP - for labor since labor is a productive service...

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MPP and MRP: Just as demand and supply forces together determine prices and quantities of goods exchanged in the product market similar rules operate in the factor market . If the labor market is assumed to be competitive then the rate of wages will be fixed and uniform. At such a competitive wage rate a firm has to decide how many workers it can profitably employ. In other words, a firm has to determine its own demand for labor. The productive contribution of an additional or marginal worker governs such a demand
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Unformatted text preview: for labor since labor is a productive service. A firm is guided in this respect by the marginal productivity rule . The most important principle determining demand for labor is called Marginal Productivity Theory . It attempts to relate marginal contribution to the output produced and the rate of wages required to be paid to the marginal worker. Wages are paid in cash or money units while the product is measured in physical units....
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