What is the difference between the marginal product of labor and the marginal revenue product of labor? Briefly explain the impact of diminishing returns on a marginal revenue product curve As new substitutes for office productivity software aredeveloped, the demand for workers in office productivity software production shouldA.
The additional Profit maximization A profit-maximizing firm will use less of a factor of production when: The marginal physical product of the additional factor unit is greater than the marginal revenue product MRP of the additional factor unit.
The extra cost Create an Account and Get the Solution. Log into your existing Transtutors account. Have an account already? Click here to Login. No Account Yet? Click here to Sign Up. Sign in with Facebook. Looking for Something Else? Ask a Similar Question Ask Now.
This is because the factors are demanded not because they directly satisfy the wants. The factors are purchased to put them to work for producing consumer goods which satisfy human wants. Other things being equal, the greater the contribution made to the production of goods by a factor unit, the greater the price which it will be able to command in the market.
Thus productivity is an important determinant of the price of a factor. Average physical product of a factor is the total production divided by the number of units of a factor employed. The fixed factors are, however, conceived to be adjusted or adapted in such a way that increased amount of the variable factor can be used with them. Under perfect competition in the product market conversion of the marginal physical product into money terms merely involves multiplying the marginal physical product with the price of the product since the price of the product of an individual firm under perfect competition is a given and constant quantity.
Money value of the marginal physical product under perfect competition thus means the marginal physical multiplied by the price of the product. Marginal revenue product is the increment in the total value product caused by employing an additional unit of a factor, the expenditure on other factors remaining unchanged. In other words, marginal revenue product is the marginal physical product of the factor multiplied by the marginal revenue. Table It means the marginal physical product of the factor multiplied by the price of the product i.
Since under perfect competition the demand curve of the product facing an individual firm is perfectly elastic and therefore price and marginal revenue are equal, the value of marginal product VMP and marginal revenue product MRP will be equal to each other as is shown in Table Therefore, in monopoly or in other forms of imperfect competition in the product market, marginal revenue product will not be equal to the value of marginal product.
Since price is higher than marginal revenue under monopoly or monopolistic competition in the product market, the value of marginal product VMP will be larger than the marginal revenue product MRP and the marginal revenue product MRP curve will lie below the value of marginal product VMP curve as is shown in Fig.
Thus, in perfect competition MRP and VMP have identical meaning but in monopoly and imperfect competition in the product market they diverge. In the above Table Therefore, price of the product Rs.
That is to say, marginal physical product of the factor is declining law of diminishing marginal returns has been assumed to be operating.
Thus when one labour unit is employed the marginal physical product is Since the price of the product is Rs. It shall be noticed from Col V that value of marginal product is declining as more units of labour are employed after the second unit.
This is so because marginal physical product is declining due to the Operation of law of diminishing returns. Ill by Col. VII with Col. Since marginal revenue product MRP of a factor can also be defined as the increment in the total revenue of a firm by employing an additional unit of a factor, it can also be directly found out from Col.
VI which shows the total revenue at the various levels of output. MRP can be obtained by taking out the difference between the two successive total revenues. The difference in the two successive total revenues occurs due to the employment of an extra unit of a factor. Thus when two units of labour are employed, total revenue is Rs. The definition of major terms that appear in the calculation of the value marginal product is crucial to the understanding of the term.
Here are the terms that are important in VMP and their definition;. As a result of the law of diminishing returns, marginal product and MRP will decline once more inputs are added.
This is why many firms continue to use a variable input until it's MRP amounts to the cost of the unit. In a bid to maximize profits, firms employ units of a resource of the MRP if the unit exceeds the firm's cost. If the divisibility of units is achievable, a firm with the production units A, B, C will experience these conditions;. For instance, a firm can get more units by hiring skilled labors and less unit by hiring unskilled labors, hiring skilled labor will help in reducing 'per unit costs.
Written by Jason Gordon Updated at July 1st, Contact Us If you still have questions or prefer to get help directly from an agent, please submit a request. Please fill out the contact form below and we will reply as soon as possible.
The Quarterly Journal of Economics , 4 , Managerial discretion and business behavior , Williamson, O.
0コメント