The problem of fixing the wage rate is both important and complex .
Economists have presented different theories about solution of this problem...
⚫ Marginal Productivity Theory:
This theory has been presented by prof.Alfred Marshall.
According to this theory the wage shall be determined by the value of the marginal productivity of the last worker employed in a firm.
If a firm operating under perfect competition continues to increase the number of it's worker on the supposition that other factors of production are constant, a point is reached where the marginal productivity of every additional worker goes on declining under the law of Diminishing returns .
When this marginal productivity is equal to the prevailing rate of wages additional workers are not employed and all the worker are paid a wage rate equal to the marginal Productivity.
Thus it is the marginal productivity which determines the wage rate to be paid by a firm.