average revenue product

average revenue product

the total REVENUE obtained from using a given quantity of VARIABLE-FACTOR INPUT to produce and sell output, divided by the number of units of input. The average revenue product of a factor is given by the factor's AVERAGE PHYSICAL PRODUCT multiplied by the AVERAGE REVENUE or PRICE of the product. The average revenue product, together with average cost, indicates to a firm how many factor inputs to employ in order to maximize profit in the SHORT RUN. See MARGINAL REVENUE PRODUCT.
References in periodicals archive ?
A final point of symmetry regarding price-takers is that just as the market-determined product price must at least equal the value of minimum average variable cost to insure an incentive for a loss-minimizing ppt to remain open, the market-determined wage must be no greater than the value of maximum average revenue product to insure the same for a loss-minimizing rpt; only if these conditions hold will the firm--ppt or rpt--be able to cover its total variable cost and thus be able to insure its loss (or negative total profit) is less by remaining open than shutting down.
In Figure 1b, tangency between the rpm's (labor) supply and average revenue product (ARP) schedules insures the same.
But participation in the market is profitable only if marginal revenue product (MRP) does not exceed average revenue product (ARP) at the interior optimum.
In the figure the marginal and average revenue products of athletic talent are measured from the left-hand origin for the Indians and from the right-hand origin for the Yankees.

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