{"id":6678,"date":"2021-10-30T08:51:31","date_gmt":"2021-10-30T08:51:31","guid":{"rendered":"http:\/\/euseguros.pt\/?p=6678"},"modified":"2021-11-14T19:10:24","modified_gmt":"2021-11-14T19:10:24","slug":"marginal-revenue-product-of-labor-analysis","status":"publish","type":"post","link":"https:\/\/euseguros.pt\/en\/marginal-revenue-product-of-labor-analysis\/","title":{"rendered":"Marginal Revenue Product of Labor Analysis"},"content":{"rendered":"

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What is the Marginal Revenue Product of Labor?<\/strong><\/h3>\n

In Economics we study the impact, positive or negative, of employing one more unit of something so we can make better decisions. To illustrate this concept lets look at an example.<\/p>\n

XYZ Company hires\u00a0 its workers in a perfectly competitive labor market and produces and sells coffee in a perfectly competitive product market. The market price for coffee is <\/span>\u20ac<\/span>4 per bag. The table below shows XYZ’s short-run production of coffee. Labor is the only variable input. XYZ’s fixed cost is \u20ac<\/span>500.<\/p>\n

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Before diving in to the next section, everytime you have a question like this, make a table with the structure as above:<\/p>\n

Units of Labor, Total Output per unit, Marginal Product, Marginal Revenue, Marginal Revenue of Product, Marginal Cost of Labor, Fixed Cost, Average Fixed Cost.<\/p>\n

Note:<\/strong><\/p>\n

Marginal Product<\/strong> is the difference between Total Outpur per unit of that row minus the previous row: 60-0 = 60, 140-60 = 80, 250-140 = 110 and so on.<\/p>\n

Marginal Revenue<\/strong> is the <\/span> <\/span>\u20ac amount per unit being sold: in this case a coffee bag for <\/span>\u20ac4.00<\/span><\/p>\n

Marginal Revenue Product<\/strong> (MRP) = MP x MR<\/span><\/p>\n

Marginal cost of Labor<\/strong> (MCL) is the fixed wage per worker, a given number for these exercises. Same thing for Fixed Costs.
<\/span><\/p>\n

Average Fixed Cost<\/strong> Formula is Total Fixed Cost \/ Total Output per unit<\/span><\/p>\n

With that done, the typical analysis envolves us asnwering the following questions:<\/p>\n

1. When does XYZ starts experiencing diminishing returns?<\/strong><\/p>\n

Notice the blue box: with 3 units of labor, the company has 110 marginal units or product, but with 4 they have 70, so the company stops at 3 units of labor.<\/p>\n

2. What is the average fixed cost for each hired worker?<\/strong><\/p>\n

Average Fixed Cost Formula is Total Fixed Cost \/ Total Output per unit. In this example i did it for 4 units of labor. You can do for all.<\/p>\n

AFC4 = <\/span>\u20ac<\/span>500\/320 = <\/span>\u20ac1.56<\/span><\/p>\n

3. Given a certain wage, what is the profit-maximizing number of workers to be hired?<\/strong><\/p>\n

To answer this question we look at MRP vs MCL. MRP need to be higher. In this specific case, the breaking point is at 5 units of labor where <\/span>\u20ac<\/span>240> <\/span>\u20ac<\/span>200<\/p>\n

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In this post we will look at an example of Marginal Revenue Product of Labor Analysis.<\/p>","protected":false},"author":1,"featured_media":6680,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[152,153],"tags":[278,277,279],"yoast_head":"\nMarginal Revenue Product of Labor Analysis - EU Seguros<\/title>\n<meta name=\"description\" content=\"In this post we will look at an example of Marginal Revenue Product of Labor Analysis.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/euseguros.pt\/en\/marginal-revenue-product-of-labor-analysis\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Marginal Revenue Product of Labor Analysis - 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