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Explain the factors which determine the marginal revenue product of labour.
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Explain the factors which determine the marginal revenue product of labour. [10] The marginal revenue product of labour (MRP) is the additional revenue gained by selling the output of one additional worker. The MRP is calculated by multiplying the marginal physical product of an individual worker (MPP) by marginal revenue (MR). Marginal Revenue Product = Marginal Physical Product x Marginal Revenue The concept is based on the assumption that the firm's product is sold in a perfectly competitive market. The price of its product is not reduced when extra units of output are sold. Thus the MR from the sale of an extra unit is equal to the price. Also all factors of production other than labour are fixed in quantity, and so labour is the variable factor. The marginal revenue product of labour is affected by many factors, including the physical productivity of labour, the wage rate and the demand for the...
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