Which of the following best describes how marginal revenue product (MRP) is a technique that helps managers make decisions?

• A. MRP helps managers identify fixed costs in the production process.
• B. MRP helps managers determine the optimal quantity of a resource to hire by comparing the additional revenue generated by one more unit of input to its cost.
• C. MRP allows managers to calculate the total profit earned from all resources used in production.
• D. MRP is used by managers to set the price of the final product in the market.

Answer: (B)

Verified step by step guidance

1. Understand the concept of Marginal Revenue Product (MRP): MRP measures the additional revenue generated by employing one more unit of a resource (like labor or capital). It is calculated as the marginal product of the resource multiplied by the marginal revenue from selling the output produced by that resource.
2. Express the formula for MRP: \(\text{MRP} = \text{Marginal Product (MP)} \times \text{Marginal Revenue (MR)}\).
3. Recognize the decision-making role of MRP: Managers use MRP to decide how many units of a resource to hire by comparing the MRP to the cost of hiring that resource (usually the wage or rental rate).
4. Apply the rule for optimal resource hiring: Hire additional units of the resource as long as \(\text{MRP} \geq \text{Resource Cost}\). Stop hiring when \(\text{MRP} < \text{Resource Cost}\) because hiring more would reduce profit.
5. Conclude that MRP helps managers determine the optimal quantity of a resource to hire by comparing the additional revenue generated by one more unit of input to its cost, ensuring efficient allocation of resources.