Question

The added output for which one additional input of labor is responsible is its (LO3) a) marginal revenue product b) marginal physical product c) average revenue product d) average physical product

Short answer

The correct answer is b) Marginal Physical Product, as it represents the additional output produced by adding one extra unit of input (labor in this case). The other terms do not properly describe the added output for one additional input of labor.

Step-by-step solution

Understand the Terminology

To choose the correct answer, we must understand the definitions of the given terms: marginal revenue product, marginal physical product, average revenue product, and average physical product. 1. Marginal Revenue Product (MRP): It is the additional revenue generated by employing one extra unit of input (in this case, labor). It can be calculated by multiplying the marginal physical product by the output price. MRP shows the contribution of the additional labor input to the overall revenue of a firm. 2. Marginal Physical Product (MPP): It is the additional output produced by adding one extra unit of input (labor in this case). It measures the change in total output quantity as a result of employing one more unit of labor. 3. Average Revenue Product (ARP): It is the total revenue generated per unit of labor divided by the total units of labor employed. It reflects the average revenue generated by each unit of labor input. 4. Average Physical Product (APP): It is the total output produced divided by the total units of labor employed. It measures the average output per unit of labor input. By understanding each of these terms, we can now determine which option best matches the scenario described in the problem statement.

Determine the Correct Answer

Since the exercise is asking for the added output produced by one additional input of labor, it is clear that we are looking for a term that reflects the additional output resulting from a change in labor input. By analyzing the definitions of each term, it is evident that the correct answer is: b) Marginal Physical Product This is because the marginal physical product (MPP) represents the additional output produced by adding one extra unit of input (labor in this case). The other three terms are related to revenue, averages, or a combination of both, which do not properly describe the added output for one additional input of labor.

Key concepts

Microeconomics Concepts

Microeconomics explores the decision-making processes of individuals and firms and how they allocate resources. One fundamental concept is the "marginal" decision, which analyzes how the behavior or output changes when an economic variable is altered by a small amount. For instance, when discussing labor inputs, this approach helps firms determine how hiring one more worker will affect their output and revenue, a vital principle for maximizing efficiency and profits. In this realm, terms like "marginal physical product" and "marginal revenue product" play crucial roles:

• Marginal Physical Product (MPP): The increase in total output resulting from using an additional unit of labor.
• Marginal Revenue Product (MRP): The extra revenue generated by employing one more unit of labor, calculated as MPP multiplied by the output price.

Microeconomics thus provides the tools for analyzing these incremental changes, guiding businesses in resource allocation and optimization.

Production Theory

Production theory examines the relationship between input factors, like labor and capital, and the output that an enterprise generates. Understanding this relationship is key to improving production efficiency. A central element in this analysis is the concept of marginal changes: - **Marginal Physical Product (MPP):** This refers to the change in output when one additional unit of input, such as labor, is utilized while keeping all other factors constant.
It provides a snapshot of how effective the additional labor will be, crucial for deciding if adding more workers is beneficial. The law of diminishing returns also factors into production theory, stating that adding more of one input, like labor, while holding others steady, eventually increases output at a decreasing rate. This helps businesses identify the optimal level of resources, preventing overstaffing and inefficient production.

Labor Input Analysis

Labor input analysis evaluates the contribution of labor to the production process. It is a crucial component that helps firms understand efficiency and the overall value of their workforce in production. Key concepts in labor analysis are: - **Marginal Physical Product (MPP):** Vital for understanding how each additional worker affects output. This metric allows firms to assess whether hiring additional staff will lead to significant increases in production or merely trivial benefits.
- **Average Physical Product (APP):** The total output produced divided by the number of labor units, indicating average productivity per worker.
- **Average Revenue Product (ARP) and Marginal Revenue Product (MRP):** These help determine the revenue contribution per worker, and guide firms on whether the revenue from an additional worker surpasses their cost. Ultimately, thorough labor input analysis aids in making informed decisions about workforce size and composition, ensuring sustainable and profitable production levels. By balancing these analysis tools, firms can efficiently plan their labor input to optimize production and profitability.