Question

State and explain 3 limitations of the marginal productivity theory

Answer 1

1. Unrealistic assumptions: Just as in most of the theories in economics, unrealistic assumptions are made in the marginal productivity theory. It makes unrealistic assumptions like perfectly competitive market, perfect mobility of labour, which do not happen in the real world. In the real world, the assumptions made in the theory may not always stand true. So the theory may not always be applicable.

2. Difficult calculations: Let's say we're talking about marginal productivity of labour. In this theory, other factors are kept constant. This makes the measurement really difficult.

3. Another limitation of the marginal productivity theory is that the marginal increase or decrease is not caused only by the particular factor in question. There are other factors of production which also contribute to the change in the production.