Derivation Of An Individual Firm�S Demand For Labour Using Marginal Revenue Product
Economics notes
Derivation Of An Individual Firm�S Demand For Labour Using Marginal Revenue Product
➡️ Marginal Revenue Product (MRP) is the additional revenue generated by employing one additional unit of a particular factor of production. It is calculated by multiplying the marginal physical product (MPP) of the factor by the marginal revenue (MR) of the product.
➡️ MRP is an important concept in economics as it helps to determine the optimal level of production and the optimal combination of factors of production. It also helps to determine the optimal price of a product or service.
➡️ MRP is used to determine the optimal level of employment for a particular factor of production. It is also used to determine the optimal wage rate for a particular factor of production.
How does an individual firm derive its demand for labour using marginal revenue product?
The demand for labour by an individual firm is derived using marginal revenue product (MRP). MRP is the additional revenue generated by employing one more unit of labour. It is calculated by multiplying the marginal physical product (MPP) of labour with the marginal revenue (MR) of the firm. MRP = MPP x MR. The firm will employ labour up to the point where the MRP is equal to the wage rate. At this point, the firm will be maximizing its profits.
What are the factors that influence the demand for labour by an individual firm?
The demand for labour by an individual firm is influenced by a number of factors, including the marginal physical product of labour, the marginal revenue of the firm, the wage rate, the cost of capital, the availability of substitutes, and the demand for the firm�s product.
How does the demand for labour by an individual firm change over time?
The demand for labour by an individual firm can change over time due to changes in the factors that influence it. For example, if the marginal physical product of labour increases, the demand for labour will increase. Similarly, if the wage rate increases, the demand for labour will decrease.