Q.State the employment rule of the marginal productivity theory of distribution.

The marginal productivity theory gives one simple rule that a profit-maximising firm follows when deciding how many units of any factor to hire. …

The employment rule of the marginal productivity theory states that a firm aiming to maximise profit will keep hiring additional units of a factor of production as long as the extra revenue that unit brings in -- its marginal revenue product, $MRP = MPP \times MR$ -- is greater than the price the firm must pay for it (the wage rate for labour, rent for land, the interest rate for capital). The firm stops hiring exactly where:

$MRP = \text{Price of the Factor}$ …

Students sometimes state the rule using total revenue or average revenue instead of marginal revenue product -- the employment decision is always a margina …