What is meant by marginal productivity theory of wages?
As applied to wages, the marginal-productivity theory holds that employers will tend to hire workers of a particular type until the contribution that the last (marginal) worker makes to the total value of the product is equal to the extra cost incurred by the hiring of one more worker.
What are the assumptions of marginal productivity theory?
The marginal productivity theory of distribution is based on the following assumptions: (i) It assumes that all units of a factor are homogeneous. (ii) They can be substituted for each other. (iii) There is perfect mobility of factors as between different places and employments.
What are the 3 theories of wage determination?
Some of the most important theories of wages are as follows: 1. Wages Fund Theory 2. Subsistence Theory 3. The Surplus Value Theory of Wages 4.
What is functional distribution explain the marginal productivity theory of distribution?
According to this theory, an entrepreneur or a firm will employ a factor at a given price till its marginal productivity tends to be equal to its price. It thus follows that the reward (price) of a factor tends to be equal to its marginal productivity.
What is the classical theory of wages?
The simple Classical theory of employment is based on two fundamental postulates. The first is that “wage is equal to the marginal product of labour” Accepting the law of Diminishing Marginal Productivity as employment increases, any increase in employment is necessarily associated with lower real wage rates.
What is modern theory of wages?
Modern theory of wages regards wages as a price of labour. According to this approach also wages are determined by the interaction of market forces of demand and supply of labour. To further understand this theory we need to explain the Demand and Supply of labour and the nature of their curves.
What are the limitations of marginal productivity theory?
i. Refer to one of the major limitations of marginal productivity theory. Marginal productivity theory stands true only under certain conditions, such as homogeneity of factors of production, perfect competition, and perfect mobility of factors of production.
What are the main assumptions of marginal analysis?
segregation of cost into fixed and variable cost. the whole principle of marginal costing is based on the idea that some costs vary with production while some costs don’t. therefore, it is assumed that a clear bifurcation between fixed and variable costs is possible.
What are the modern theory of wages?
According to the modern theory of wages, wages are the price of services rendered by a labor to the employer. As products the prices are determined with the help of demand and supply curve. Similarly, the wages (prices of services rendered by labor) is also obtained with the help of demand and supply of labor.
What are the types of wages?
Types of Wages:
- Piece Wages: Piece wages are the wages paid according to the work done by the worker.
- Time Wages: If the labourer is paid for his services according to time, it is called as time wages.
- Cash Wages: ADVERTISEMENTS:
- Wages in Kind:
- Contract Wages:
Who presented the theory of marginal productivity?
Marginal productivity theory, in economics, a theory developed at the end of the 19th century by a number of writers, including John Bates Clark and Philip Henry Wicksteed, who argued that a business firm would be willing to pay a productive agent only what he adds to the firm’s well-being or utility; that it is …
Who proposed marginal productivity theory of distribution?
J. B. Clark
The marginal productivity theory of distribution, as developed by J. B. Clark, at the end of the 19th century, provides a general explanation of how the price (of the earnings) of a factor of production is determined.
What is the marginal productivity theory of wages?
The marginal productivity theory states that, under conditions of perfect competition, every worker of same skill and efficiency in a given category will receive a wage equal to the value of the marginal product of that type of labour.
Which is the best economic theory of wages?
The Economic theories of wages are: 1.Subsistence Theory 2.Wages fund Theory 3.The residual claimant Theory 4.The surplus value Theory 5.Marginal productivity Theory 6.The bargaining Theory of wages 7.Employment Theory 8.Competitive Theory
How does low productivity affect the supply of Labour?
Low productivity may be the cause of low wages, which may tell on the efficiency of the worker, lower his standard of living, and ultimately check the supply of labour. The theory takes the supply of labour for granted.
What is the marginal product of an industry?
The marginal product of labour in any industry is the amount by which the output would be increased if one more man was employed while the quantities of other factors of production employed in the industry remained constant. In short, it is the output of a single worker unaccompanied by any change in other factors of production.