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.
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