marginal product of factors of production, and thus lead to a rightward
shift of the MP curve. For labour, for example, one kind of “better
technology” is better-educated workers. If better education increases the
marginal product of labour, the MP curve for labour will shift to the right,
firms’ demand for labour will increase, and firms will hire more labour at
any given wage.
A second way to shift a factor’s MP curve is if there are more units of
factors with which to work. An increase in the amount of physical capital,
for example, will generally increase the marginal product of any given
amount of labour. Suppose that Figure 13-1 shows the marginal product
(and MRP) for labour under the assumption that the firm has a given
stock of capital. If the firm now expands its capital stock by building a
larger factory, the marginal product of any given amount of labour will
increase, thus shifting the MP curve in part (i) to the right. The result will
be that the MRP curve in part (ii) also shifts to the right, thus increasing
the firm’s demand for labour.
Any increase in a factor’s marginal product will lead to an increase in demand for that factor.
Such an increase can come about through improvements in the quality of the factor or an
increase in the amount of other factors of production.A Change in Firms’ Marginal Revenue
Anything that increases firms’ marginal revenue will increase the MRP
a factor and thus lead to an increase in demand for that factor. For firms
that operate in a competitive product market, an increase in marginal
revenue is simply an increase in the market price of the product. In Figure