What is the theory of marginal productivity?

Theory of marginal productivity is an economic concept that postulates the company should only add variable costs if the company brings value. For example, work is variable costs necessary for the production of goods. Hiring too many workers when the materials or equipment for the production of goods are limited, increases costs without adding value to the company. The theory of marginal productivity is also a concept of measuring economy from the extent. This determines how much value the company will generate by increasing production production. From an economic point of view, the company determines the price of goods and services where marginal income equals marginal costs. This maximizes the sale of consumers. In order to achieve this point of profit maximization, companies will have to calculate the variable costs that increase when trying to increase production. These costs include mainly materials and work.

When the bounded boundDy will increase too much, the theory of marginal productivity states that companies do not better produce goods. This theory establishes its concepts about the fact that companies that continue to produce goods at higher costs higher than income will not be able to achieve savings of extent. The costs will continue to eat the company's profits and eventually reduce the company's capital balances and potentially lead the company to bankruptcy. This is also known as the law of decreasing revenues in the theory of marginal productivity. At some point, the company is unable to produce more goods to increase its economic value.

Savings from the extent will appear when the company can increase its production to a point where it reduces fixed costs of the allocated goods. Fixed costs and increasing marginal costs are compensated by increased production and ability of Saturite market with multiple products. However, yields from scale economies can be reduced if the competitor also attempts to increase the output.

The theory of marginal productivity may also face anotherm factors that will reduce its impact on society. For example, consumers reception, the threat of substitute goods and restrictions on the input obstacles can reduce the company's market maximization and maximize profits. If consumer intake is reduced, they cannot buy goods or services. Replacement goods are products that the consumer considers to be a cheaper product that offers the same value as the original goods. Limited or no obstacles to the entry mean that consumer demand can lead to other companies easily entering the market and producing similar goods that earn profits.