# Q: difference b/w MR and MRP

Econ: MR: marginal revenue MRP: marginal revenue product what’s the difference? Thanks

MR is the additional revenue derived from 1 additional unit MRP = MR * MP = the additional revenue derived from additional marginal product. If marginal product is 1 additional unit then MRP = MP.

I don’t understand this concept. Is there a better way to explain it?

Marginal revenue is the additional money a company earns from selling 1 additional unit of its product. Marginal revenue product is the additional money a company earns from selling >1 additional units of its product. For example, if the marginal revenue of selling 1 unit is say \$1.50 then if you sell 10 units then we say the marginal revenue product is \$1.50*10 or \$15.

MR is the additional revenue from selling 1 more unit of product Marginal Product (MP) is the addition to a firms total output from employing 1 more unit of a “productive resource” or hiring 1 more unit of labour MRP is the additional revenue from selling the extra output provided by an additional worker Retreiver: If MR = \$1.50 and MP = 10 THAN MRP = \$15 That Marginal Product is the additional product from 1 more unit of labour, the next unit of labour we add may have MP = 5. In which case the MRP of the second worker is \$7.50. So, using your example, if we hired a new worker whose MP was 10 and the MR for each unit was \$1.50, than MRP = \$15 for that worker. MRP doesn’t mean that we just take a given output level and multiply it by MR.

So I guess I’m getting hung up on the “employing one more unit of a productive resource” portion. What defines a productive resource? If it’s just any input, then MP for an input could be a tiny fraction of one unit of output, right? Then how would you determine MRP? Fractionally?

>“employing one more unit of a productive resource” portion. What defines a productive resource? Productive resource can be any factor of production that helps in production process. Example: Efficient labor, Good quality or fertile land for farming etc. lets say a production process requires 10 labors until now only 8 have been employed, 2 more labors could employed to reach ‘efficient level of production’. >If it’s just any input, then MP for an input could be a tiny fraction of one unit of output, right? Marginal product can be positive, negative or constant. Read diminishing marginal product concept. >Then how would you determine MRP? Fractionally? Open page 255 CFA eco text book for numerical example. Keep in mind: MP is production. MR is revenue. (Think them as theory concept) MRP (Think it as practical application of MR and MP concepts) Example: How hiring one more labor (unit of production) will effect the revenue generation. I hope this helps.

Guys, I still don`t get it…

How much will revenue increase if I add a gear to the machine, or add an employee to my business, or buy another apartment building? MRP answers these questions. -MRP states that workers will be hired up to the point where the Marginal Revenue Product is equal to the wage rate by a maximizing firm, because it is not efficient for a firm to pay its workers more than it will earn in profits from their labor. (http://en.wikipedia.org/wiki/Marginal_revenue_product)

So, MR is the additional money a company earns from selling 1 additional unit of its product(eg : Ford COmpany -> by selling 1 more Car) and, MRP is additional money a company earns from emplying 1 more unit of labor (eg: Ford Comapny-> increasing the number of labor, how much it will earn?) This is my understanding, Am I correct?

which one of you is this? http://www.youtube.com/watch?v=wIg3IeHV5Wc Watch the video, it’s actually quite informative.

can anyone clear the confusion?

Marginal Revenue is a pretty simple concept: For perfect competition, MR= price. For anything else (monopoly, oligopoly), MR is downward sloping, as to sell more units you have to lower the price. So Marginal revenue is the amount of money received by the company for selling that extra unit. (So yes, for Ford, the money received for selling one more car). Marginal Product is the amount that output is increased by adding one more unit of production while holding other types of production constant (think of units of production as employees as it is easier to comprehend). So for example, if you hire another worker, you’ll produce 10 more shirts if you keep the same amount of machinery. If you hire a second extra worker, they’ll produce 8, and the third will produce 5. Marginal Revenue product combines the two, or is other words, is Marginal product in dollar terms. So if you’re in perfect competition (with a constant price), then the MRP of the first extra worker is 10 x Price, so with a price of 15, the MRP is \$150. For the second extra worker it is 8 x 15= \$120. The third worker is \$75 (5 x 15). The basis on how many you hire is dependent on their wage, or cost. If you pay your workers \$120, you’ll hire the first and second extra workers, as they produce at least as much as their cost. If their wage was \$70, then you would hire three extra workers. Hope this helps.

varundarji Wrote: ------------------------------------------------------- > So, > MR is the additional money a company earns from > selling 1 additional unit of its product(eg : Ford > COmpany -> by selling 1 more Car) > and, > MRP is additional money a company earns from > emplying 1 more unit of labor > (eg: Ford Comapny-> increasing the number of > labor, how much it will earn?) > > This is my understanding, Am I correct? Yes, I believe you are correct. Just to be clear, if with 10 workers Ford generates \$10 in revenue, and with 11 workers, Ford generates \$10.40 in revenue, then MRP of the 11th worker is \$0.40. Right?

Yes, Billy. Best example is in CFA curriculum pg 255. MRP is the change in total revenue that results from employing one more unit of labor (worker)