<p>My macroeconomics book(Mankiw 7th ed.) states the following: Economic Profit = Y − (MPL × L) − (MPK × K ). It also states that the (economic) profit of a firm equals the output minus the total real wages and rent paid. This I understand. However, I don't understand how MPL * L can equal the real wage, since there is diminishing returns to scale. So the extra production that a new worker now would add(my understanding of Marginal product of labour), is less than the extra production that every previous worker added, so how can we use MPL to compute the total real wage of all workers/units of labours in the firm(vice versa for MPK)?</p>

CC BY-SA 4.0
2020-05-16T16:42:52.830Z
The implicit assumption here is production technology has constant returns to scale.
Michael
CC BY-SA 4.0
2020-05-16T21:07:58.747Z
So is constant returns to scale a contradiction to diminshing returns? (sorry for bad english)
x3rox45
<macroeconomics>
Why does real wage equal MPL * L
x3rox45
# Why does real wage equal MPL * L

(Asked by: username_0 on 2020-05-16)

My macroeconomics book(Mankiw 7th ed.) states the following: Economic Profit = Y − (MPL × L) − (MPK × K ). It also states that the (economic) profit of a firm equals the output minus the total real wages and rent paid. This I understand. However, I don't understand how MPL \* L can equal the real wage, since there is diminishing returns to scale. So the extra production that a new worker now would add(my understanding of Marginal product of labour), is less than the extra production that every previous worker added, so how can we use MPL to compute the total real wage of all workers/units of labours in the firm(vice versa for MPK)?

**Tags:** macroeconomics
> **Comments:**
> **username_1**: The implicit assumption here is production technology has constant returns to scale.  
> **username_0**: So is constant returns to scale a contradiction to diminshing returns? (sorry for bad english)  

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## 0 answers

