A shop foreman determines that an employee would produce two more units of output if he worked one additional hour. The product currently sells for $15.00 per unit and the firm is a price taker. Which of the following choices most accurately describes the relationship between the marginal revenue (MR) and marginal revenue product (MRP) from the additional hour of labor input? A) MRP > MR. B) MRP = MR. C) MR < $15 and MRP = MR. D) MR = $15 and MRP < MR.
Your answer: B was incorrect. The correct answer was A) MRP > MR. By definition, the MR is the addition to total revenue from selling one more unit of output. The MRP is the revenue from selling the marginal product, which in this example is two units. Therefore the MRP must be greater than the MR. HELP!!!
Answer is ‘A’ since 1 hr of more work, produced 2 more units of goods… and as per the definition of Marginal Product = it’s just that extra bit of revenue received on selling 1 more unit of output and Marginal Revenue Product = it’s the extra revenue received from selling all the units produced by that extra unit of work. In this case, 2 units were produced. so MRP is the addition to the revenue by selling both the products in the market… So, MRP had to be greater than MR on this… there’s nothing much to it, it’s just the definition that’s confusing… - Dinesh S
got it…thanks dinesh