Which of the following best describes the marginal revenue product (MRP) of labor in the context of a firm's production function?

• A. The total output produced by all workers in the firm.
• B. The additional revenue generated by employing one more unit of labor, holding other inputs constant.
• C. The cost of hiring an additional unit of labor.
• D. The difference between total revenue and total cost.

Answer: (B)

Verified step by step guidance

1. Understand that the Marginal Revenue Product (MRP) of labor measures the additional revenue a firm earns by employing one more unit of labor, while keeping other inputs constant.
2. Recall that MRP is calculated by multiplying the Marginal Product of Labor (MPL) by the Marginal Revenue (MR) from selling the output produced by that additional labor unit.
3. Express this relationship mathematically as: \(\text{MRP}_L = \text{MPL} \times \text{MR}\), where \(\text{MPL} = \frac{\Delta Q}{\Delta L}\) and \(\text{MR} = \frac{\Delta TR}{\Delta Q}\).
4. Recognize that the total output produced by all workers is the total product, not the marginal revenue product, and that the cost of hiring labor or the difference between total revenue and total cost are different concepts.
5. Conclude that the best description of MRP of labor is the additional revenue generated by employing one more unit of labor, holding other inputs constant.