How the marginal revenue product of such workers might be estimated. Pro. Sports salaries or famous actors.?

Question

Consider the salaries of professional athletes or famous actors (A-Rod and the cast of T.V. shows like "Friends" are good examples). Is it possible that such workers may be underpaid? how the marginal revenue product of such workers might be estimated.

Answer 1

The marginal revenue product (MRP) of a worker is equal to the product of the marginal product of labor (MP) and the marginal revenue (MR): MPR = MP*MR.

If labor markets for athletes or actors are perfectly competitive, marginal revenue product is equal to marginal physical product (extra unit produced) multiplied by price.

Despite their high salaries, athletes or actors may still be underpaid if some market friction prevent them from extracting the full monetary value of their contribution. For example, in "The Blind Side: Evolution of a Game", Michael Lewis uses the story of Michael Oher to explain how football has changed and how the left tackle (the offensive lineman who protects the quarterback's blind side) has become one of the most highly compensated athletes in the NFL.

Estimating the marginal revenue product of these types of workers in the presence of market frictions is difficult since we are dealing with an unobserved counter-factual: What would have been the equilibrium wage for this person in a perfectly competitive labor market?