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Using marginal revenue product theory, explain why countries such as Greece and the UK have different minimum wage rates for different age groups. [3 marks]

Marginal revenue product is the additional revenue a firm gains by having a unit of labour produce an addition unit of the good being sold. The UK and Greece will have different minimum wage rates for the same age groups because of the productivity of their labour with respect MRP. It can be concluded that the UK has a higher minimum wage for all age groups than Greece and this would suggest that Greece workforce as a whole is less productive, meaning that the marginal revenue product of a Greece worker for is lower than the marginal revenue product of a UK worker for the same job. Hence, if firms pay workers according to their marginal revenue product, UK firms are required to pay more per worker as MRP is higher here, leading to an overall higher minimum wage.



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