Final answer:
Marginal revenue product is the extra revenue from employing an additional unit of input and is calculated as the marginal product of the input multiplied by the marginal revenue. This concept is true and is especially relevant for firms with market power, like a monopoly, which must lower prices to sell more output, thus affecting the MRP. It plays a significant role in resource allocation and maximizing profits for firms.
Step-by-step explanation:
The statement that marginal revenue product is the change in total revenue from employing an additional factor unit is True. Marginal revenue product (MRP) is indeed the extra revenue generated when a firm employs one more unit of input, such as labor or capital. It can be calculated by multiplying the marginal product of that factor (the additional output produced by the last unit of the factor employed) by the marginal revenue (the revenue earned from selling that additional output).
Particularly, in the context of firms with market power, such as a monopoly, they must lower the price to sell additional output, hence their marginal revenue is not equal to the price. The marginal revenue product then factors in this decreasing price effect. As more units of labor are employed, the marginal product of labor (MPL) typically decreases, and because additional output requires a lower selling price, marginal revenue (MR) also declines. This dual decline affects firms with market power and causes MRP to decrease as employment levels increase. Therefore, understanding the concepts of marginal product of labor, marginal revenue, and their impact on the marginal revenue product is crucial for firms when deciding how much labor to employ to maximize profits. The aforementioned principles are essential for making economic decisions about resource allocation.