Marginal Revenue Product of Labor
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A Marginal Revenue Product of Labor is a measure of the marginal product of labor (MP) and the marginal revenue (MR) given by MR×MP
- AKA: MRP.
- Context:
- It can be represented as the increment to revenues caused by the increment to output produced by the last laborer employed.
- …
- Counter-Example(s):
- See: Labor Demand Function, Wage Rate, Labor Demand Elasticity, Marginal Revenue Productivity Theory of Wages.
References
2014
- http://en.wikipedia.org/wiki/Marginal_revenue_productivity_theory_of_wages
- … The marginal revenue product (MRP) of a worker is equal to the product of the marginal product of labor (MP) and the marginal revenue (MR), given by MR×MP = MRP. The theory 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 revenues from their labor.
- http://en.wikipedia.org/wiki/Marginal_revenue_productivity_theory_of_wages#Marginal_Revenue_Product_in_a_perfectly_competitive_market
- Under perfect competition, marginal revenue product is equal to marginal physical product (extra unit produced as a result of a new employment) multiplied by price. :[math]\displaystyle{ MRP = MPP \times \text{AR}\,\! }[/math] :[math]\displaystyle{ MRP = MPP \times \text{Price}\,\! }[/math] This is because the firm in perfect competition is a price taker. It does not have to lower the price in order to sell additional units of the good.
2013
- http://www.sparknotes.com/economics/micro/labormarkets/labordemand/section1.rhtml
- QUOTE: If the marginal revenue product (MRP) of labor is equal to the market wage, the firms will be at their optimal point of labor consumption, since buying more labor would mean that the MRP is less than the wage, and buying less labor would mean that the MRP is greater than the wage. If the marginal revenue product of labor is less than the market wage, then the firms are using too much labor, and those firms will probably cut back on the hours they buy until the MRP of labor is equal to the wage.
- MRP > w : The firm will buy more labor
- MRP = w : The firm is buying the right amount of labor
- MRP < w : The firm is buying too much labor
- QUOTE: If the marginal revenue product (MRP) of labor is equal to the market wage, the firms will be at their optimal point of labor consumption, since buying more labor would mean that the MRP is less than the wage, and buying less labor would mean that the MRP is greater than the wage. If the marginal revenue product of labor is less than the market wage, then the firms are using too much labor, and those firms will probably cut back on the hours they buy until the MRP of labor is equal to the wage.