It’s because marginal productivity theory doesn’t explain prices. This is the extra revenue a firm gains from employing an extra worker.

2. If a company's total costs exceed the revenue generated by its sales, it loses money. MRP = MPP x MR. A fierce controversy between the supporters and the critics of the doctrine ensued in 1870-90. For every business, turning a profit is a balancing act that requires making sales while limiting costs. To explain why, let me introduce what is called the marginal productivity theory of resource demand, and the profit maximizing rule. The marginal productivity theory of profit has been criticised on the following grounds: (1) The theory assumes that all the units of entrepreneurs are identical. And many more companies state that they have falling, rather than rising marginal cost curves. As is known, the neoclassical marginal productivity theory of income distribution states that under perfect competition the factors of production are rewarded with the value of their marginal product. The overwhelmingly bad news here (for economic theory) is that, apparently, only 11% of GDP is produced under conditions of rising marginal cost… Firms report having very high fixed costs – roughly 40% of total costs on average. One theory put forward ill this connection is the marginal productivity theory. Marginal-productivity theory indicates that the demand for a factor of production is based on the marginal product of the factor.

Marginal productivity theory can also face other factors that will reduce its impact on a company. Demand by a firm for a factor of production is the marginal productivity schedule of the factor. Why do most Americans earn so much by global standards? MARGINAL PRODUCTIVITY THEORY: A theory used to analyze the profit-maximizing quantity of inputs (that is, the services of factor of productions) purchased by a firm in the production of output. The “surplus value” of Karl Marx (1818–1883) comes from his idea that economic value is the amount of work needed to produce a good or service. MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION: 1. To maximize profits, the firm should hire additional units of a given resource, labor, land, and capital. Marginal Revenue Product of Labour (MRP) This is an economic theory which suggests demand for labour depends on the marginal revenue product of a worker. However, adding an input while holding other inputs constant will not increase productivity indefinitely. MRP = MPP x MR. Diminishing marginal productivity recognizes that a business manager cannot change the quantity of all inputs at one time. Concept of Marginal Productivity.