MRPL and MP Flashcards
What does the marginal revenue product of labor (MRP_L) measure?
The additional revenue a firm gains by employing one more unit of labor, holding other inputs constant
Formally, MRP_L = Δ(Total Revenue) / ΔL.
In a perfectly competitive product market, how is MRP_L calculated?
MRP_L = P × MPL
Where P is the output price and MPL is the marginal product of labor.
What condition must a profit-maximizing firm meet when hiring workers?
MRP_L = W
Where W is the wage paid to the workers.
How can you rearrange the equation P × MPL = W?
MPL = W / P
This indicates that the marginal product of labor equals the real wage.
What is the definition of the marginal product of labor (MPL)?
MPL = ΔQ / ΔL
MPL measures the additional quantity of output produced by one extra unit of labor.
What does the equation MPL = W / P imply?
The marginal product of the last worker hired equals the real wage
This is sometimes referred to as a firm’s profit margin condition.
True or False: In the long run, economic profit is driven to zero in perfect competition.
True
This means that firms earn no lasting excess profits.
What happens in the short run regarding profit margins in a perfectly competitive market?
A firm may earn some profit margin on each unit sold
This occurs if the average cost is below the market price.
What is the Value of the Marginal Product (VMP_L)?
VMP_L = P × MPL
This is the price multiplied by the additional output produced by one extra worker.
What is the difference between Marginal Revenue Product (MRP_L) and Value of the Marginal Product (VMP_L) in imperfect competition?
MRP_L = MR × MPL < P × MPL = VMP_L
In imperfect competition, marginal revenue is less than price.
Why might one see the statement ‘MRP_L < MPL’?
It usually means the firm exercises market power, leading to MR < P
This can cause confusion if the factor price is omitted.
What does the profit maximization condition state?
MRP_L = W
This implies that the additional revenue from hiring one more worker equals the wage.
What does MPL = W / P suggest about labor’s contribution?
It indicates that labor’s cost equals labor’s contribution at the margin
This reflects a margin above average cost in the short run.
What occurs in a perfectly competitive market regarding MRP_L and P × MPL?
MRP_L = P × MPL
There is no gap between marginal revenue product and value of the marginal product.
Fill in the blank: In imperfect competition, MRP_L = _______ < P × MPL.
MR × MPL
What is the implication of MPL = W / P in terms of labor compensation?
It ensures that each worker is paid exactly the amount of revenue they add at the margin
This condition does not guarantee long-term profits.
Why is the MRPL < MPL
in imperfect competition
as firms face downward sloping demand curve for its porduct (MR < P)
