What happens in the case of imperfect competition, where the individual firm’s demand curve is downward-sloping? Here •.the marginal revenue received from each extra unit of output sold is less than the price because the firm must lower its price on previous units to sell an additional “unit. Each unit of marginal product will be worth Mil < P to the firm.
To continue our previous example, say that the MR is $2 while the price is $3. Then the MRP of thesecond worker in Table 12-3would be $20,000 (equal to the MPL of 10,000 X the MR of $2), rather than the $30,000 of the competitive case.
To summarize: Marginal revenue product represents the additional revenue a firm earns from using an additional unit of an input, with other inputs held constant. It is calculated as the marginal product of the input multiplied by the marginal revenue obtained from
selling an extra unit of output. This holds for labor (L), land (A), and other inputs. In sr~bols: Marginal revenue product of labor
(MRPLl = MR X MPL
Marginal revenue product of land
(MRPA) = MR X MP.~
and so forth. Under conditions of perfect competition, because
Marginal revenue product
(URP;) = P X MP;
for each input.
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