Question

When a perfectly competitive firm (that sells its good for $20 per unit) hires 1 unit of factor X it produces 70 units of output and when it hires 2 units of factor X it produces 85 units of output. Marginal revenue product of the second unit of factor X is equal to

A. $30
B. $530
C. $265
D. $300

Answer 1

D) $300

Step-by-step explanation:

Marginal revenue product (MRP) refers to the amount of money that an extra unit of resources (generally labor) generates for the company. It is calculated by multiplying the marginal physical product (MPP) times the marginal revenue (MR).

The MPP is the amount of output generated by using one extra unit of resources, in this case = 85 units - 70 units = 15 units

The MR is the sales price of the units produced = $20

MRP = MPP x MR = 15 units x $20 per unit = $300

Answer 2

d) $300

Step-by-step explanation:

Marginal revenue is the extra revenue from a resource the extra revenue earned from the use of additional unit of a given resource for production purpose. It is calculated as the increase in total revenue as a result of utilizing one additional unit of a factor of production.

Marginal revenue = total revenue from 85 units - total revenue from 70 units

Marginal revenue = ($20 × 85) - ($20× 70)

= $300