The marginal productivity theory is a subject of criticism due to its severe defects.
However, its main points of criticism are mentioned below:
1. Unrealistic Assumptions:
The theory assumes that there exists perfect competition in all the markets. But in reality, perfect competition is only an imaginary concept. In modern days, perfect competition does not hold good.
2. All Factors are not Homogeneous:
This theory assumes that all units of a given factor are homogeneous. It is wrong. In reality different units of a given factor are heterogeneous.
3. Difficult to Measure MPP:
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Prof. Hobson has criticized this theory on the ground that it is not possible to measure the marginal productivity. He maintained that if the number of labourers is increased to measure their marginal productivity then other factors like raw material, tools, implements etc. will also have to be increased.
4. Only One-Sided Theory:
Marshall, Friedman criticised this theory on the ground that it is only one sided theory. As it assumes supply to be constant to determine the marginal productivity, it is possible only in the short-run. But in the long run supply of every factor is variable.
5. Labour is not Perfectly Mobile:
This theory assumes that labour is perfectly mobile. In actual life factors of production are not perfectly mobile. It is very difficult to move from one occupation to another.
6. Short-Period Ignored:
The marginal productivity theory holds good in the long run only while it ignores the short period. But in actual practice, the problems of short period are more important than that of the long period. As Lord Keynes stated that in the long run we all are dead. Therefore, all problems are needed to be solved in the short run.
7. No Reward Determination:
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This theory fails to determine the reward. It only explains how much quantity of factors can be employed at given prices.
8. Level of Employment and Wage Rate:
According to this theory, employment can be increased by wage cut. Moreover, according to Keynes, the volume of employment is not determined by wage rate but by effective demand.
9. Static:
Some economists criticized this theory saying that it is a static theory because it ignores the technical changes which cause a shift in production function. This theory assumes this curve to be given. Therefore, it is considered to be incomplete theory being static in nature.
10. Unrealistic Assumption of Full Employment:
The marginal productivity theory assumes that the situation of full, employment prevails in the economy. It is a rare phenomenon. But, in reality there exists hardly any country in the world whether advanced or less advanced which enjoys full employment. Therefore, these theory does not hold well in the real world.
11. Theory of Exploitation:
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If units of factors are paid according to marginal productivity and the enterprise is subject to the law of diminishing returns, then it will result in the exploitation of the factor in question.
12. Effect of Factor Pricing on Productivity:
According to Prof. Clark, price of the factors also affect their productivity. Prof. Weblen was also of the opinion that factor price affects the marginal productivity.
13. Vague Concept of Marginal Productivity:
According to Taussig and Davenport, the concept of marginal productivity was vague. Production was the result of the co-operative efforts of all the four factors of production and it was not possible to separate out the contribution of one factor.
14. Fails to Determine Factor Pricing:
According to Prof. Fellner, marginal productivity theory does not determine factor pricing. Every firm has to pay the wages determined by the demand and supply of industry. At this prevailing wage rate, the firm only has to decide as to how many units of labour should be employed so that marginal productivity and marginal wages are equal. Thus this theory only determines the factor demand not the factor price.