- The marginal revenue produced by the factor involves two
elements: first, the additional output that an extra unit of the
factor produces and, second, the change in price of the product
that the extra output causes. Let Q be output, R revenue, and
the number of units of the variable factor hired. The contribution
to revenue of additional labour is. This, in turn, depends
on the contribution of the extra labour to output (the
marginal product of the factor) and the contribution of the extra
output to revenue (the firm’s marginal revenue). Thus,
We define the left-hand side as marginal revenue product, MRP
Thus,
- The proposition that the marginal labour cost is above the
average labour cost when the average is rising is essentially the
same mathematical proposition proved in note 15. Nevertheless,
let us do it again, using elementary calculus.
The quantity of labour supplied depends on the wage rate:
. Total labour cost along the supply curve is
average cost of labour is. The marginal cost of
labour is
∂R/∂L
∂Q/∂L
∂R/∂Q
∂∂RL = ∂∂QL ⋅∂∂RQ
MRP =MP⋅MR
Ls=f(w) w⋅Ls
(w⋅Ls)/Ls=w