Description
Marginal Revenue Product
Marginal revenue product is defined as the change in total revenue that results from the employment of an additional unit of a resource. A producer wishes to determine how the addition of pounds of plastic will affect its MRP and profits. See the table below, and answer each of the questions.
| Pounds of plastic (quantity of resource) | Number of assemblies (total product) | Price of assemblies ($) |
| 0 | 0 | - |
| 1 | 15 | 13 |
| 2 | 30 | 11 |
| 3 | 40 | 9 |
| 4 | 55 | 7 |
| 5 | 58 | 5 |
a. The marginal product of the 3rd pound of plastic is ________.
b. The marginal revenue product of the 3rd pound of plastic is ______.
c. The price of plastic is $135 per pound. To maximize profit, the producer should produce
__________________.
d. The price of plastic is $135 per pound. To maximize profit, the producer should buy and use:
________________.
Explanation & Answer
(a) Calculate marginal product of 3rd pound of plastic -MP = Total product of 3 pounds of plastic - Total product of 2 pounds of plastic = 40 assemblies - 30 assemblies = 10 assembliesThus, the marginal product of the 3rd pound of plastic is 10 assemblies.(b) Calculate marginal revenue product of the 3rd pound of plastic -First, we have to calculate the total revenue when 2 pounds of plastic is used -Total Revenue (TR2) = Total product of 2 pounds of plastic * Price = 30 assemblies * $11/assembly = $330Now, we will ca...
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