How Do You Calculate The Marginal Revenue Product?
Marginal revenue product shows how much a company’s revenue will change, usually for an individual project, given the change in some sort of variable. Variables include items such as increasing employees, increasing employee hours worked or increasing inventory on hand. Marginal revenue product is important because it helps companies decide at what output revenue is maximized. Marginal revenue product looks at the demand curve where the y-axis is the revenue change, and the x-axis is the output change. Find the change in revenue at the given output if a variable changes on the demand curve. For example, a company wants to see marginal revenue product if they increase employee hours. By increasing employee hours worked each week, output increases to 100 units from 90 units, and revenue increases from $300 to $320. Here, the change in revenue is $20. Determine the change in output due to the change of the variable. In our example, 100 units minus 90 units equals a change in output of 10
