What is Marginal Revenue Product ?

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The Marginal Revenue Product (MRP) refers to the additional revenue generated from employing one more unit of a production factor, such as labor or capital. It reflects the contribution of a production factor to the total revenue in the production process. The formula for calculating MRP is:where the marginal product is the additional output produced by adding one more unit of the production factor, and the price per unit of output is the market selling price of that output. MRP is a crucial criterion for firms in deciding whether to increase the input of production factors. If the MRP exceeds the cost of the production factor, firms typically increase input; if the MRP is less than the cost, firms may reduce input. By analyzing MRP, firms can optimize resource allocation, enhance production efficiency, and improve profitability.

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