How To Calculate The Marginal Revenue Product Of Labor

New productivity 1 333 pieces per labor therefore sdf ltd s marginal product of a labor of the new workforce is 2 000 pieces per labor that has resulted in an increase in the productivity of the entire team from 1 250 pieces per labor to 1 333 pieces per labor.

How to calculate the marginal revenue product of labor. Firms care about marginal product of labor because their hiring decisions depend on whether the additional output generated by the new worker i e. New productivity 600 000 450. The marginal revenue product of labor is the marginal product of labor multiplied by the product s price. In this example we are assuming here that the firm employing labour is operating in a perfectly competitive market so that each unit of output sold generates a revenue of 20.

Mrpl marginal product of labour x marginal revenue. Mpl is higher than the cost of the worker. Formula to calculate marginal product of labor mpl marginal product of labor formula is the formula that calculates the change in the level of the output of the company when there is the addition of a new employee in the company and according to the formula marginal product of labor is calculated by dividing change in the value of the total product by the change in the labor. The marginal revenue of the fourth unit of labor is 10 five units multiplied by 2 and the marginal revenue of the fifth unit of labor is 6 three units multiplied by 2.

The marginal product of labor is important because it s a key variable in the calculation of the marginal revenue product of labor which is the change in total revenue rather than just total output when one additional employee is hired and all other factors remain constant. Thus the firm will hire four units of labor. Formula to calculate marginal product of labor. Marginal revenue product calculation.