Question : If hiring extra workers increases a factory's output from 1000 to 1200 units per day, but the factory has to reduce the price of its product from Rs. 25 to Rs. 24 per unit to sell the additional output, the Marginal Revenue Product of the last worker is:
Option 1: Rs. 3800
Option 2: Rs. 200
Option 3: Rs. 4000
Option 4: Rs. 100
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Correct Answer: Rs. 3800
Solution : The correct option is Rs 3800.
Marginal revenue product (MRP), also known as the marginal value product, is the marginal revenue created due to an addition of one unit of resource.
In this case:
- Initial output (before hiring extra workers) = 1000 units
- Final output (after hiring extra workers) = 1200 units
- Initial price per unit = Rs. 25
- Final price per unit = Rs. 24
Change in Total Revenue = (Final Total Revenue) - (Initial Total Revenue)
Change in Total Revenue = (Final Output * Final Price) - (Initial Output * Initial Price)
Change in Total Revenue = Rs. 3800
MRP = (Change in Total Revenue)/(Change in Quantity of Labour)
MRP = Rs. 3800/1 = Rs 3800
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