MRP Formula:
From: | To: |
Marginal Revenue Product (MRP) is the additional revenue generated by employing one more unit of a resource (typically labor). It's a key concept in economics that helps businesses determine the optimal number of workers to hire.
The calculator uses the MRP formula:
Where:
Explanation: MRP shows how much extra money a business makes by hiring an additional worker, considering both their productivity and the revenue from their output.
Details: MRP helps businesses make optimal hiring decisions. Workers should be hired until MRP equals the wage rate (the point where hiring more workers would cost more than they generate in revenue).
Tips: Enter the marginal product of labor (units produced by the last worker hired) and the marginal revenue (revenue from selling one more unit). Both values must be positive numbers.
Q1: What's the difference between MRP and VMP?
A: Value of Marginal Product (VMP) uses product price rather than marginal revenue. In perfect competition (where P=MR), VMP equals MRP.
Q2: How does MRP relate to wages?
A: Profit-maximizing firms hire workers until MRP equals the wage rate. This determines the demand curve for labor.
Q3: What causes MRP to change?
A: MRP changes with worker productivity (MPL) or product demand (which affects MR). Technology improvements typically increase MRP.
Q4: Can MRP be negative?
A: Yes, if adding workers decreases total output (negative MPL) or if selling more units decreases revenue (negative MR).
Q5: How is MRP used in real business decisions?
A: Businesses compare MRP to labor costs when deciding whether to hire, how much to pay, and which workers to retain.