Multiple Choice
Which of the following correctly explains the effect of an increase in the price of the product produced by labor on the labor demand curve in a perfectly competitive market?
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15. Markets for the Factors of Production
Demand for Labor in Perfect Competition
Multiple Choice
Marginal revenue product (MRP) of labor refers to the:
A
difference between marginal cost and marginal revenue
B
additional cost incurred from hiring one more unit of labor
C
total revenue divided by the number of workers employed
D
additional revenue generated by employing one more unit of labor
Verified step by step guidance1
Understand the concept of Marginal Revenue Product (MRP) of labor: it measures the additional revenue a firm earns by employing one more unit of labor while keeping other inputs constant.
Recall that MRP is calculated by multiplying the Marginal Product (MP) of labor by the Marginal Revenue (MR) from selling the output produced by that labor.
Express this relationship mathematically as: \(\text{MRP} = \text{MP} \times \text{MR}\), where MP is the additional output from one more worker and MR is the additional revenue from selling that output.
Recognize that MRP differs from marginal cost or total revenue per worker because it specifically focuses on the incremental revenue generated by the last unit of labor hired.
Conclude that the correct definition of MRP is the additional revenue generated by employing one more unit of labor, which aligns with the concept of productivity and revenue generation in labor economics.
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