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 its output. Marginal productivity theory indicates that the demand for a factor of production input is based on the marginal product of the factor and the price of the output produced by the factor. See also | theory | factor markets | short-run production | input | factors of production | marginal product | derived demand | marginal physical product | marginal revenue product | marginal factor cost |
