the extra output that the last worker hired adds

If the MPL is three t-shirts the first will hire more workers until the MPL reaches two if the MPL is one t-shirt then the firm will remove workers until the MPL reaches two. Theory states that a profit maximizing firm will hire workers up to the point where the marginal revenue product is equal to the wage rate, because it is not efficient for a firm to pay its workers more than it will earn in revenues from their labor.įor example, if a firm can sell t-shirts for $10 each and the wage rate is $20/hour, the firm will continue to hire workers until the marginal product of an additional hour of work is two t-shirts. This can be used to determine the optimal number of workers to employ at an exogenously determined market wage rate. The marginal revenue product of a worker is equal to the product of the marginal product of labor (MPL) and the marginal revenue (MR) of output, given by MR×MP: = MRPL. The marginal revenue product of labor (MRPL) is the change in revenue that results from employing an additional unit of labor, holding all other inputs constant. diminishing marginal returns: The decrease in the per-unit output of a production process as the amount of a single factor of production is increased.The change in output from hiring one more employee is not limited to that directly attributable to the additional worker.The marginal revenue productivity theory states that a profit maximizing firm will hire workers up to the point where the marginal revenue product is equal to the wage rate.The marginal revenue product of a worker is equal to the product of the marginal product of labor (MP:) and the marginal revenue (MR) of output.The second column shows total production with different quantities of labor, while the third column shows the increase (or decrease) as labor is added to the production process. Gives another example of marginal product of labor. Graphically, the MPL is the slope of the production function.

When production is continuous, the MPL is the first derivative of the production function in terms of L. If a factory that is initially producing 100 widgets hires another employee and is then able to produce 106 widgets, the MPL is simply six.

When production is discrete, we can define the marginal product of labor as ΔY/ΔL where Y is output. Conversely, hiring an additional worker onto an already crowded factory floor may make the other employees less productive, leading to a marginal product that is lower than the work done by the additional employee. This is not always equivalent to the output directly produced by that added unit of labor for example, employing an additional cook at a restaurant may make the other cooks more efficient by allowing more specialization of tasks, creating a marginal product that is greater than that produced directly by the new employee. In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor.

marginal product: The extra output that can be produced by using one more unit of the input.

returns to scale: A term referring to changes in output resulting from a proportional change in all inputs (where all inputs increase by a constant factor).

The law of diminishing marginal returns ensures that in most industries, the MPL will eventually be decreasing.

Graphically, the MPL is the slope of the production function.

When production is continuous, the MPL is the first derivative of the production function in terms of L.

When production is discrete, we can define the marginal product of labor (MPL) as ΔY/ΔL.

The marginal product of labor is not always equivalent to the output directly produced by that added unit of labor.

The extra output that the last worker hired adds