MARKETS AND RESOURCES

Markets and Resources



Markets and Resources

1.  Marginal revenue product is defined as the change in total revenue that results from the employment of an additional unit of a resource. A widget producer wishes to determine how the addition of pounds of rubber will affect its MRP and profits. See the table below, and answer each of the questions.  

 

Pounds of rubber

(quantity of resource)

Number of widgets

(total product)

Price

of widgets ($)

0

1

2

3

4

5

0

20

35

45

50

53

-

12

10

8

6

4

 

 a. The marginal product of the 3rd pound of rubber is 10.

b. The marginal revenue product of the 3rd pound of rubber is $10.

c. The price of rubber is $110 per pound. To maximize profit, the widget producer should produce 35 widgets.

d. The price of rubber is $110 per pound. To maximize profit, the widget producer should buy and use: 2 pounds of rubber.

 

The marginal revenue productivity theory of wages, also referred to as the marginal revenue product of labor and the value of the marginal product or VMPL, is the change in total revenue earned by a firm that results from employing one more unit of labor. It is a neoclassical model that determines, under some conditions, the optimal number of workers to employ at an exogenously determined market wage rate.[1]

The idea that payments to factors of production equilibrate to their marginal productivity had been laid out early on by such as John Bates Clark and Knut Wicksell, who presented a far simpler and more robust demonstration of the principle. Much of the present conception of that theory stems from Wicksell's model.

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), given by MR×MP = MRP. The theory states that workers will be hired up to the point where the Marginal Revenue Product ...