Marginal productivity, wages, and profits in neoclassical economics In neoclassical economics a worker is paid the marginal product of what they produce. If this is true then what is the source of profits?
Recall the profit function.

$$\pi=pf(x)-wx$$

where $x$ is a set of inputs, and $w$ is a set of input prices.

A firm is profit maximizing when $MC=MR$ or in a competitive case where $MC=p$. If a worker is paid his marginal product (where $MPL=w$) we only pay what he produces. 

If  marginal cost is constant and marginal revenues are constant across all production sets, then the firms profits will be zero. 

However if there are diminishing returns from the inputs then every worker is paid less, thus allowing for profits to exist in the short run. 

Bottom line: In the short run, through the diminishing returns from labor that profit for the firm comes into existence.

In the long run however, new firms enter capturing more and more of the profits until they are reduced to zero.