The following table shows the total output produced by different units of a resource.Assume that the resource and output markets are both perfectly competitive.The equilibrium price of the resource is $15.00, and the equilibrium price of the product is $0.50. Table 14.2
Marginal revenue product (MRP)of a resource is the product of the marginal product of the resource and the marginal revenue.
Refer to Table 14.2.What is the marginal-revenue product of the third unit of the resource?

Question

The following table shows the total output produced by different units of a resource.Assume that the resource and output markets are both perfectly competitive.The equilibrium price of the resource is $15.00, and the equilibrium price of the product is $0.50. Table 14.2
 Marginal revenue product (MRP)of a resource is the product of the marginal product of the resource and the marginal revenue.
Refer to Table 14.2.What is the marginal-revenue product of the third unit of the resource?

Quizplus · Accepted Answer

The marginal product of the third unit is 30 - 20 = 10. The marginal revenue is $0.50. Therefore, the marginal revenue product of the third unit is 10 × $0.50 = $5.00. However, since the resource price is $15.00, the MRP of the third unit is $15.00 × 1/3 = $5.00. The correct answer is therefore $5.00 × 3.5 = $17.50.

The best choice would be to hire three units of the resource as this would maximize profits. At any level less than three units, MRPL > MRC, indicating that hiring one more unit of resource would add more to revenues than to costs. At any level greater than three units, MRP < MRC, indicating that hiring one less unit would result in less cost than revenue loss.

The Following Table Shows the Total Output Produced by Different