Marginal Revenue Product

We can use the tools of production theory to devise a key concept. marginal revenue product (MRP). Suppose we are operating a giant shirt factory. Weknow how many shirts each additional worker produces. But the firm wants to maximize profits measured in dollars, for it pays salaries and dividends with money, not with shirts. We therefore need a concept that measures the additional each additional unit of input produces. Economists give the name “marginal revenue product” to the money value of the additional output generated by an extra ‘unit of input. .

The marginal revenue product of input A is the additional revenue produced by an additional unit of input A.

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