marginal product

Examples of marginal product in the following topics:

• Marginal Product of Labor (Physical)

  • The marginal product of labor is the change in output that results from employing an added unit of labor.
  • When production is discrete, we can define the marginal product of labor as ΔY/ΔL where Y is output.
  • gives another example of marginal product of labor.
  • Under such circumstances diminishing marginal returns are inevitable at some level of production.
  • This table shows hypothetical returns and marginal product of labor.

• Marginal Productivity and Resource Demand

  • Firms will demand more of a resource if the marginal product of the resource is greater than the marginal cost.
  • The marginal product of a given resource is the additional revenue generated by employing one more unit of the resource.
  • Since firms will seek to use additional resources if the net marginal product is positive, they can affect the demand for the resources.
  • If each firm has a positive marginal productivity of using more water in their manufacturing process, they will use more water since it's free (there is no, or limited, marginal cost).
  • When firms have positive net marginal productivity from using more oil, demand for oil will rise.

• Marginal Revenue Productivity and Wages

  • In a perfectly competitive market, the wage rate is equal to the marginal revenue product of labor.
  • To determine demand in the labor market we must find the marginal revenue product of labor (MRPL), which is based on the marginal productivity of labor (MPL) and the price of output.
  • We know that a profit-maximizing firm will increase its factors of production until their marginal benefit is equal to the marginal cost.
  • Thus, workers earn a wage equal to the marginal revenue product of their labor.
  • For example, in a perfectly competitive market, an employee who earns $20/hour has a marginal productivity that is worth exactly $20 .

• Marginal Revenue and Marginal Cost Relationship for Monopoly Production

  • When the marginal revenue of selling a good is greater than the marginal cost of producing it, firms are making a profit on that product.
  • Most will have low marginal costs at low levels of production, reflecting the fact that firms can take advantage of efficiency opportunities as they begin to grow.
  • Production occurs where marginal cost and marginal revenue intersect.
  • Production occurs where marginal cost and marginal revenue intersect.
  • Analyze how marginal and marginal costs affect a company's production decision

• Average and Marginal Cost

  • Marginal cost includes all of the costs that vary with the level of production.
  • An example of calculating marginal cost is: the production of one pair of shoes is $30.
  • Average cost can be influenced by the time period for production (increasing production may be expensive or impossible in the short run).
  • Average cost and marginal cost impact one another as production fluctuate :
  • The curves show how each cost changes with an increase in product price and quantity produced.

• Monopoly Production Decision

  • To maximize output, monopolies produce the quantity at which marginal supply is equal to marginal cost.
  • If we assume increasing marginal costs and exogenous input prices, the optimal decision for all firms is to equate the marginal cost and marginal revenue of production.
  • Nonetheless, a pure monopoly can – unlike a firm in a competitive market – alter the market price for its own convenience: a decrease of production results in a higher price.
  • However, monopolists have the ability to change the market price based on the amount they produce since they are the only source of products in the market.
  • Monopolies produce at the point where marginal revenue equals marginal costs, but charge the price expressed on the market demand curve for that quantity of production.

• Marginal Analysis

  • Specifically, firms tend to accomplish their objective of profit maximization by increasing their production until marginal revenue equals marginal cost, and then charging a price which is determined by the demand curve.
  • In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output is known as marginal-cost pricing.
  • In the marginal analysis of pricing decisions, if marginal revenue is greater than marginal cost at some level of output, marginal profit is positive and thus a greater quantity should be produced.
  • Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced.
  • In some cases, a firm's demand and cost conditions are such that marginal profits are greater than zero for all levels of production up to a certain maximum.

• Marginal Cost Profit Maximization Strategy

  • In order to maximize profit, the firm should set marginal revenue (MR) equal to the marginal cost (MC).
  • Marginal revenue is the additional revenue that will be generated by increasing product sales by one unit.
  • In a perfectly competitive market, the price of the product stays the same when another unit is produced.
  • This is the case because the firm will continue to produce until marginal profit is equal to zero, and marginal profit equals the marginal revenue (MR) minus the marginal cost (MC).
  • If MRproduct it sells.

• Profit Margin

  • Profit margin is one of the most used profitability ratios.
  • The gross profit margin calculation uses gross profit and the net profit margin calculation uses net profit .
  • Companies need to have a positive profit margin in order to earn income, although having a negative profit margin may be advantageous in some instances (e.g. intentionally selling a new product below cost in order to gain market share).
  • The profit margin is mostly used for internal comparison.
  • A low profit margin indicates a low margin of safety.

• The Supply Curve in Perfect Competition

  • In economics, a cost curve is a graph that shows the costs of production as a function of total quantity produced.
  • In a free market economy, firms use cost curves to find the optimal point of production (minimizing cost).
  • By locating the optimal point of production, firms can decide what output quantities are needed.
  • The marginal revenue-marginal cost perspective relies on the understanding that for each unit sold, the marginal profit equals the marginal revenue (MR) minus the marginal cost (MC).
  • Profit maximization is directly impacts the supply and demand of a product.