The marginal product revenue it is equal to the price of the increase in total income, it is the result of the sale or marketing of an additional product. It is the unit of a given good offered at market cost.
In microeconomics, income from marginal product is used to establish the change in general income by transforming the price of output into a firm. It influences whether in this production process there will be the use of applied technology that generates an increase in the different costs.
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According to the Law of diminishing returns, the greater the number of units produced in a company, the lower the income of the marginal product.
In this article you will find:
What is marginal cost?
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It is the additional price that is obtained, as a result of promoting the sale of one more unit of the product. If the income and the cost are equal, it will not be representing a surplus or increasing any good, this will bring losses to the company.
The perfect competition in a company is established when production and the consumer do not influence the cost of the service, therefore Therefore, the income of the marginal product derives a horizontal line obtained by the price assigned for the sale of each unit of the product.
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For a company to calculate its revenue from marginal product, it must apply the formula for marginal revenue, which will be the result of total revenue related to quantity.
IM = CHANGE TOTAL INCOME / ADDITIONAL UNITS
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Let's look at an example: If a flannel company earns revenue of $ 15 from the sale of a unit of flannel, then the marginal product revenue will be:
MI = ($ 15 is total revenue / 1 unit of product) = $ 15
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In the event that the income from the sale of the second flannel is $ 18, the MI acquired from the production will be:
MI = (15 + 18) -15 dollars / 1 additional unit) = 18 dollars / additional unit = 18 dollars
This will allow the company to compare the price of production for each new unit added to general income and total cost.
In this way, the profit from the sale of one more unit will be greater than the marginal price.
Existing marginal productivity types
There are different types, so it is important to review what this type of marginal productivity consists of.
- Physical productivity
It is when we refer to the growth of production, to the expansion for each unit of the product with greater impulse. The increase in total production is the result of adding each unit as a determining factor of constant production.
- Marginal income productivity
It is related to the change in total income, it can be said specifically, that it is adding to the total income the result of each unit produced.
- Productivity Value
It is the value acquired, by multiplying the marginal physical production with the cost of the product derived from production.
Marginal Productivity Theory
It is one of the most used theories, considering it one of the safest and most used. This theory of marginal productivity applies when there is perfect competition in the product market.
Main factors of the main productivity theory:
- Perfect competition in the factor market: refers to organizations that purchase production at actual and current market cost only.
- Homogeneity of factors: It is indicated when all the units of a factor of production are perfectly substituted for each other.
- Substitutability of factors: It is when different factors of production intervene as substitutes in work.
- Divisible factors: makes mention of different production factors and how they can be distributed in small groups when there are a large number of workers in a company.
- Maximum benefit: It is the main objective of a company, to increase its profits, it applies strategies among which can minimize the cost of products, reduce the number of workers, among others strategies.
- Full employment: it applies when the conditions of employment will be a factor subject to the consolidated quantity of production.
- Variable input coefficient: It is used if the factors of production are constant or can be substituted.
Limitations of the marginal productivity theory
In the theory of marginal productivity, the important consideration of placing product prices and how to set costs, however, there are certain limitations What:
- Unrealistic assumptions: the theory of marginal productivity has conditions such as the uniformity of the elements of production, the perfect capacity and the change of the factors of production.
- Difficulty in measurement: indicates that the factors of product manufacture cannot be measured accurately.
For a company, the income of the marginal product is going to be produced by increasing the productive factor efficiently in the market competition.
