marginal revenue product

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The addition to total revenue from a small increase in any factor input, per unit of the increase. This takes account of both the effect of the extra input in raising the quantity produced, and the effect of an increase in the quantity sold on the price that can be charged for it. Marginal revenue product equals marginal product multiplied by marginal revenue per unit of additional output sold. Formally, let revenue be given by

R = p(y)y = p(F(K, L)F(K, L)

where y is the level of output determined by the production function, y = F(K, L), with K and L as inputs. The marginal revenue product of capital iswhere is marginal revenue, and that of labourPositive marginal revenue thus requires that εd > 1.

Subjects: Economics.

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