Factors Of Production (Introduction)

Question 1

i) Explain what is meant by the marginal physical productivity of a factors of production
ii) Discuss the factor that influence MPP [25 marks]

Answer 1

i) MPP- This measures the extra output produced as a result of employing an additional unit of a factor of production
ii) Quality/Specialisation - If the quality of the factors used improves, then they become more efficient, resulting in extra output produced.

Training/ education provided for the factors - If the factors are provided with additional training/education, they will become more efficient resulting in greater output.

Expertise of the entrepreneur - If the entrepreneur is an expert at organising the factors , then each factor will able to work it its maximum efficiency resulting in greater output.

Law of diminishing marginal returns - As each additional unit of a factor are combined with other factors, eventually additional output produced will decline.

Question 2

i) Explain what is meant by the marginal revenue productivity of a factor of production
ii) Discuss the factors that influence MRP

Answer 2

i) MRP - This is the extra revenue earned as a result of employing an additional unit of a factor of production.
ii) Productivity of the factor - The more productive each additional factor employed is, the more MRP that factor will earn.

The law of demand - On the market the law of demand dictates that to sell more price must be reduced. As a result, marginal revenue falls resulting in less MRP.

The selling price - If the selling price on the market is rising then marginal revenue will increase and so too will MRP.