Criticism of marginal revenue product MRP

• According to MRP theory, what two key things have we learned so far?

  Wage rate determines workers employed; MRP equals wage for job
• How does MRP theory explain how a firm decides the number of workers to employ at a given wage rate?

  It employs workers until MRP equals wage
• According to MRP theory, under what condition will workers get a job?

  If their MRP is at least equal to their wage
• According to MRP, how are workers paid?

  According to their MRP
• Why might the real world not align with the idea that workers are paid according to MRP and the number of workers firms employ is determined by MRP?

  Knowledge of MRP is a key assumption
• What is one reason measuring productivity might be very difficult?

  Output is not marketed, lacking a price
• Why is it difficult to determine the MRP of teachers?

  The output teachers produce is not marketed
• According to the study material, why is it difficult for schools to know the number of workers to employ at a given wage rate?

  It is difficult to work out MRP
• What is the problem with firms trying to decide the number of workers to employ based on MRP if they don't know MRP?

  It is very difficult or impossible
• In what situation is it difficult to measure an individual's productivity, as highlighted in the study material?

  When they work in teams
• If workers produce output as a team, why is it difficult for firms to know the MRP of an individual?

  It is very very difficult to measure
• Why might it be difficult for firms to know whether to employ a worker looking for a new job, according to the study material?

  It is difficult to know the MRP
• How does the payment of the self-employed potentially distort MRP theory?

  They don't always pay according to MRP
• What assumption does marginal revenue product theory make about labor markets?

  They are perfectly competitive
• According to the study material, what factor might cause higher wages that have nothing to do with the marginal revenue product of workers?

  Trade unions
• How do trade unions potentially contradict the idea that workers are paid according to their marginal revenue product?

  They may want workers to be paid more
• According to the study material, what type of labor market goes against the assumptions of perfectly competitive labor markets?

  Imperfect labor market
• In the context of this study material, what are the two key conclusions that break down when marginal revenue product theory breaks down?

  Workers paid by MRP; firms employ based on MRP