Question

a) The standard economic model of a production function where capital and labor are inputs into production, with both earning a return according to their marginal contribution to the value of output

b) The Marxian approach of production as a labor process, where the value added is distributed between the capitalist and the worker.

What is the most important difference in conclusions drawn from the the two approaches to production?

Answer 1

Answer

The standard economic model of a production function where capital and labor are two important inputs into production, and the quantity of output depends on the marginal productivity of both the inputs concludes that capital(K) and labor(L) both earn according to their marginal productivity or their marginal contribution to the value of the output, which is determined by the price of the output. If we assume that the price of capital is 'r' , and the price of labor is 'w', then 'r' depends on the marginal productivity of capital(MP_K) , and 'w' depends on marginal productivity of labor(MP_L).The firm hires that amount of labor for which the value pf the marginal productivity of labor(VMP_L= Price of output * MP_L) is equal to 'w'. Similarly, the firm hires that amount of capital for which the value pf the marginal productivity of capital( Price of output * MP_K) is equal to 'r'. Thus the inputs are not exploited here. The labor gets what it deserves.

The Marxian approach of production as a labor process concludes that the value added by labor is distributed between the capitalist and the worker. Thus this approach advocates that the labor doesn't get its total value contributed because a part of it goes to the capitalists, which is added as a surplus to the profit of the capitalists.

So, the most important difference from these two approaches, we can conclude is about the value of worker or labor. The standard economic model of a production function says that workers or laborers earn according to their marginal productivity, and thus they are not exploited. They earn what actually they deserve( w =VMP_L) . On the other hand, the Marxian approach of production says that workers do not earn what they deserve because their contribution to the value of product is distributed between the capitalists and the workers.As a result, the workers are exploited, and they earn less than their contribution to the value of the product( w VMP_L).

w = Wage rate

VMP_L= Value pf the marginal productivity of labor = Price of output * MP_L

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