Routledge Dictionary of Economics, Second Edition
marginal productivity theory (D2, D3, J3)
A theory of the demand for a FACTOR OF PRODUCTION by a profit-maximizing firm.
It is asserted that labour or capital will be demanded until the MARGINAL REVENUE from employing it is equal to its MARGINAL COST. The theory, first expounded by John Bates CLARK, has been used to explain wage determination but, as it says nothing about supply, is only useful in explaining wages in the short run when labour supply is completely INELASTIC.
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