Fig. 120 Marginal revenue product.

marginal revenue product (MRP)

the extra REVENUE obtained from using one more FACTOR INPUT to produce and sell additional units of OUTPUT. The marginal revenue product of a factor is given by the factor's MARGINAL PHYSICAL PRODUCT (MPP) multiplied by the MARGINAL REVENUE of the product. (In the case of products sold in perfectly competitive markets, marginal revenue equals price so the MRP is equal to MPP x price.)

The marginal revenue product, together with the MARGINAL FACTOR COST, indicate to a firm how many factor inputs to employ in order to maximize its profits. This can be illustrated by reference to the utilization of the labour input under PERFECT COMPETITION market conditions. In a competitive LABOUR MARKET, the equilibrium WAGE RATE and numbers employed (W_e and Q_e *, respectively, in Fig. 120) are determined by the intersection of the market demand and supply curves for labour. Because each firm employs only a small fraction of the total labour force, it is unable to influence the wage rate. Thus, the wage rate, and hence the marginal cost of labour (MFC), are constant to the firm -each extra worker adds exactly his wage rate to the firm's total factor cost (see Fig. 120 (a) ). The firm's MRP declines because although under competitive conditions the product price remains constant, the marginal physical product falls because of DIMINISHING RETURNS to the labour input.

The firm will maximize its profits by employing additional workers up to the point (Q_e in Fig. 120 (a)), where the last worker's contribution to revenue (MRP) is equal to the going wage rate (MFC).

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

Mentioned in

References in periodicals archive

In a pedagogically useful reconstruction of the theory of factor pricing, he first contrasts the timeless neoclassical general equilibrium theory, in which prices of factors of production correspond to the factor's marginal revenue product and are determined simultaneously with final output prices, with the Austrian analysis of price determination in the evenly rotating economy (ERE).

THE ECONOMIC THEORY OF COSTS: FOUNDATIONS AND NEW DIRECTIONS

In my opinion, he should apply the economic concept of 'marginal revenue product of a worker' (MRP) to his ministers and advisors.

Cabinet's productivity

The researchers measure firm productivity by studying the marginal revenue product of an extra unit of capital and an extra unit of labor.

Exploring Wide Productivity Variances among EU Firms

Where else could I learn about the 1905 Waseda University Japanese good will tour of the West Coast (Rob Fitts) one minute and the Marginal Revenue Product of what pitchers are actually worth (Shane Piesek, who calculates that the average impact of strikeout to walk ratio on team revenue is $37,114.50) the next.

Note from the editor

(9) Economists use the terms marginal value product, value of marginal product and marginal revenue product interchangeably.

The value of copyrights in recorded music: terrestrial radio and beyond: with copyright regimes everywhere under threat from piracy and wide digital dissemination, conflicts have erupted over the fair market value of copyrights. What should Canadian artists and creators be paid for their work? A lot more than they are at present

In the language of mainstream economics, people are paid their marginal revenue product, which is equal to the value of their productivity.

On Thomas Piketty's Capital in the Twenty-First Century

The specification that combines both sources of declining marginal revenue product shows that somewhat extreme, but still plausible calibrations can imply large effects.

Does intra-firm bargaining matter for business cycle dynamics?

Coaches are paid based on their expected marginal revenue product, and a coach's marginal revenue product depends both on his productivity, and how much revenue is generated from his contribution to output.

Just win baby? Determinants of NCAA football bowl subdivision coaching compensation

Following Scully (1974), we approximate the marginal revenue product of goal scoring and the saves to shots ratio by multiplying the coefficients of the team production function by the coefficients of the revenue function.

Talent and/or popularity: what does it take to be a superstar?

Studies of salary suppression both in professional sports and in other labor markets have shown the effects of monopsony power to substantially lower wages below marginal revenue product, a measure of individual players' value.

Monopsony and salary suppression: the case of major league soccer in the United States

Higher revenue sharing taxes lower the net marginal revenue product of players, and, other things equal, lower their salaries.

LWIB: MLB Revenue-Sharing is Bad, Plus Tidbits

Previous research has looked at baseball players' salaries and whether they reflect the players' marginal revenue products. When they do not and a player appears underpaid by the collusive monopsony, the resulting difference between the salary and the marginal revenue product is said to be the rnonopsonistic exploitation of the player.

Collusive monopsony and antitrust damages