Product is defined as the as the amount of output which a unit of a variable factor produces in combination with other fixed factors. Product when referred to in physical terms in terms of the units of output, as we have done above, is called physical product. However, when we express product in terms of the money value of the output produced the money value of the physical product this is called revenue product or revenue productivity. The money value if the total product is the firm gets by sale of this total amount of physical product. Similarly, average revenue product (ARP) is equeal to the total Revenue Product divided by the number of units of a variable factor employed. Marginal Revenue product (MRP) is the addition made to the total revenue of a firm by the use of an additional unit of variable factor. The concepts of average and marginal revenue product can be more easily understood.
Total Revenue product divided by the number of the units of the variable factor used. ARP can also be found out by multiplying the Average Physical Product (APP).this can also be found out by multiplying MPP by the marginal revenue, which in this case is the same as the price because we have taken the price as constant. in other words,
MRP = MPP x MR
And when price is fixed, i.e. P = MR
Then, MRP = MPP x P.
Total Average and Marginal Revenue Product
| Units of Labour | Total Physical Products (Metres) | Price per Unit $ | Total Revenue Product $ | Average Revenue Product (ARP) $ | Marginal Product Revenue (MRP) |
| i | ii | iii | iv | v | vi |
| 1 2 3 4 5 6 7 8 9 10 |
6 14 27 48 80 102 112 120 126 130 |
10 10 10 10 10 10 10 10 10 10 |
60 140 270 480 800 1020 1120 1200 12600 130 |
60 70 90 120 160 170 160 150 140 130 |
- 80 130 210 320 220 100 80 60 40 |
The important point emerging from the above table is that the marginal revenue product of labour rises (because marginal physical product rises) when additional men are taken on, until there are five workers. But once additional workers are employed beyond this point, the marginal revenue productivity of labour begins to decline. In other words, as increasing amounts of a variable factor (in this case labour) are applied to a combination of a fixed amounts ors, the marginal revenue product of the variable factor increases up to a point and then declines. This happens due to the operation of the law of variable proportions. The revenue product curves of a factor, both the average and the marginal revenue curve are of an inverted U-shape upside down, for a firm. This is depicted in where average revenue product, derived by dividing the total revenue product by the number of labourers at the corresponding level.
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