Marginal Revenue Product and Marginal Factor Cost The amount that an additional unit of a factor adds to a firm’s total revenue during a period is called the marginal revenue product (MRP) of the factor An additional unit of a factor of production adds to a firm’s revenue in a two-step process: first, it increases the firm’s output Second, the increased output increases the firm’s total revenue We find marginal revenue product by multiplying the marginal product (MP) of the factor by the marginal revenue (MR) Equation 12.1 MRP=MP×MR In a perfectly competitive market the marginal revenue a firm receives equals the market-determined price P Therefore, for firms in perfect competition, we can express marginal revenue product as follows: Equation 12.2 In perfect competition, MRP=MP×P The marginal revenue product of labor (MRPL) is the marginal product of labor (MPL) times the marginal revenue (which is the same as price under perfect competition) the firm obtains from additional units of output that result from hiring the additional unit of labor If an additional worker adds units of output per day to a firm’s production, and if each of those units Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 627