Explain the marginal product theory of distribution as applied to labour.

The marginal productivity theory of distribution emphasizes that a worker should be paid a wage which is equal the value of its marginal product

Or

It states that profit maximization dictates that labour should be rewarded according to the value of its marginal product.

The theory is based on the following assumptions

• No government interference
• The law of diminishing returns operate
• Workers and employers can calculate MRPL
• All factors of production are substitutable
• Output can be quantified in measurable units
• All factors are fully employed
• Bargaining power of employer and employee are equal
• The major goal of the firm is profit maximization
• Perfectly competitive market
• Factors of production are divisible