The marginal productivity theory of the demand for labour
Firms decide how many workers to hire by comparing what each extra worker earns for the firm against the wage they must pay. They keep hiring until those two figures are equal.
Formula
MRP = Marginal Product of Labour × Price of Output
Real World
Amazon warehouse fulfilment centres track each picker's units per hour; if a worker adds £15 of output per hour but earns £12, hiring them raises profit — Amazon keeps hiring until MRP equals the wage.
Exam Focus
In 'calculate' or 'explain' questions, always show the MRP = MPL × Price formula and confirm the profit-maximising condition MRP = W.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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