Marginal product of labour

Updated: Aug 20, 2021

The increase in output resulting from increasing labour input by a small amount. (In mathematical terms, it is the partial derivative of the production function with respect to labour.) In line with the law of diminishing product, it is assumed that after some point increasing the input of labour results in smaller and smaller increases in output. The marginal product of labour underlies the theory of the demand for labour and the determination of the wage rate, since the firm is assumed to adjust the amount of labour it seeks to hire to the point where the revenue it obtains from the sale of the output of the marginal worker is just equal to the wage it has to pay him.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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