Ax Aq

Marginal revenue product is the economic value of a marginal unit of an input factor.6 For example, if the addition of one more worker generates two incremental units of a product that can be

6 The economic value of a marginal unit of an input factor is sometimes referred to as its value of marginal product (VMP), where VMPX = MPX X Pq. In a perfectly competitive market, Pq = MRq and VMPX = MRPX.

sold for $5 each, the marginal product of labor is 2, and its marginal revenue product is $10 (= 2 X $5). Table 7.4 illustrates marginal revenue product for a simple one-factor production system. The marginal revenue product values shown in column 4 assume that each unit of output can be sold for $5. The marginal revenue product of the first unit of X employed equals the three units of output produced times the $5 revenue received per unit, or MRPX=1 = $15. The second unit of X adds four units of production so MRPX=2 = 4. For the second unit of input, MRPX=2 = $20. Marginal revenue products for each additional unit of X are all determined in this manner.

Was this article helpful?

0 0
Your Retirement Planning Guide

Your Retirement Planning Guide

Don't Blame Us If You End Up Enjoying Your Retired Life Like None Of Your Other Retired Friends. Already Freaked-Out About Your Retirement? Not Having Any Idea As To How You Should Be Planning For It? Started To Doubt If Your Later Years Would Really Be As Golden As They Promised? Fret Not Right Guidance Is Just Around The Corner.

Get My Free Ebook


Post a comment