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"Low pay is directly related to low productivity." Discuss. Suggested answer : Wages are the reward for labour and is determined by the Marginal Revenue Productivity Theory in a perfectly competitive labour market. According to the Marginal Revenue Productivity Theory, marginal revenue product is the product of the marginal physical product and the marginal revenue, i.e MRP = MPP x MR. In a perfectly competitive labour market, the marginal revenue productivity curve is downward sloping and relates the quantity of labour employed to its wages, hence it is also the demand curve for labour. As all firms are price takers, thus at equilibrium, according to the theory, profit-maximising firms will employ up to the point where MRP is equal to the wages paid (since marginal factor cost = average factor cost.) Low pay is partly due to low productivity, but it can also be due to many other reasons, like the difference in...

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