Marginal revenue product of labour formula

The concept of Marginal Revenue Product (MRP) plays a pivotal role in the decision-making process of businesses, particularly in determining the value of adding an additional unit of labor or resource to the production process.

Historical Background

The principle of marginal analysis, which includes concepts like Marginal Revenue Product (MRP), has been a cornerstone of economic theory since the late 19th and early 20th centuries.

It allows firms to maximize profits by comparing the additional costs of resources against the additional revenue those resources generate.

Calculation Formula

The formula for calculating MRP is given by:

\[ MRP = MPP \times MR \]

where:

• \(MRP\) is the Marginal Revenue Product, measured in dollars per unit of labor.
• \(MPP\) is the Marginal Physical Product, or the additional output produced by an extra unit of labor.
• \(MR\) is the Marginal Revenue, or the revenue generated per additional unit of product sold.

Example Calculation

For instance, if an employee can produce an extra 300 units, and each

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