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In: Economics

what is the difference between value of marginal product and marginal revenue product? under what conditions...

what is the difference between value of marginal product and marginal revenue product? under what conditions are they the same? under what market conditions are these who not the same in value?

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Expert Solution

The value of marginal product and marginal revenue product are the determinants of the factor prices. The marginal revenue product or MRP is defined as the increments in which the total value product is caused by employing an extra unit of factor while The other factors of expenditure remains the same. The marginal revenue product is given by the equation,

MRP=MPP×MR

Where,

MRP:Marginal revenue product

MPP:Marginal physical product

MR:Marginal revenue

While,the value of marginal product means the marginal physical product of the particular factor multiplied by the price of the particular product and is given by,

VMP=MPP×AVERAGE PRICE(price)

Where,

VMP:Value of marginal product

MPP:Marginal physical product

When the demand curve is perfectly elastic then the value of marginal product and marginal revenue product will be equal. But when there is imperfections , competitions or monopoly in between in the product market then the demand curve falls down and the curve lies below the average revenue curve which leads to the condition that the price is not equal to the marginal revenue.

Rahul Sunny answered 1 year ago
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