Enter the marginal physical product and the revenue per product into the calculator to determine the marginal revenue product (MRP).
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The following formula is used to calculate the total marginal revenue product:
MRP = MPP * MR
- Where MRP is the marginal revenue product ($/unit)
- MPP is the total number of extra goods one unit of labor will produce
- MR is the marginal revenue of the goods produced by the increase in labor
In this formula, the explain MPP further, if a business is looking to hire one additional person, and that person will be able to produce 300 units of product, then the MPP is equal to 300.
In this case, the price those 300 units are sold at would be considered the marginal revenue ($).
What is MRP?
MRP, short for marginal revenue product, is a measure of how much additional revenue is gained from the hiring of one unit of labor. In other words, how much revenu will be generated if a company hires one worker.
How to calculate MRP?
- First, determine the total number of units one worker can produce.
For this example, we will used the same number of units of above and assume the worker will produce an additional 300 units. The amount the worker produced could be per any unit of time. (day/year/month etc).
- Next, determine the marginal revenue of the product.
In this case, the revenue generated by each unit is known to be $20.00.
- Finally, calculate the total marginal revenue product.
Using the formula above, the MRP is calculated to be:
MRP = MPP * MR
MRP = 300 * 20
MRP = $6,000.00