Marginal Revenue Product - MRP

Loading the player...

What is a 'Marginal Revenue Product - MRP'

The change in revenue that results from the addition of one extra unit when all other factors are kept equal. The marginal revenue product is used in marginal analysis to examine the effect of variable inputs, such as labor, and follows the law of diminishing marginal returns. As the number of units of a variable input increase, the revenue generated by each addition unit decreases at a certain point. It is calculated by taking the marginal product of labor and multiplying it by the marginal revenue of a firm.

BREAKING DOWN 'Marginal Revenue Product - MRP'

The marginal revenue product is different than the marginal product in that it is not a measure of quantity but a measure of revenue. The MRP is often used to calculate the affect of adding employees, as companies want to add employees up to the point at which additional labor won't bring in enough revenue to cover costs.

RELATED TERMS
  1. Marginal Revenue - MR

    The increase in revenue that results from the sale of one additional ...
  2. Marginal Profit

    Marginal profit is the profit earned by a firm or individual ...
  3. Contribution Margin

    A cost accounting concept that allows a company to determine ...
  4. Profit Margin

    Profit margin is part of a category of profitability ratios calculated ...
  5. Margin Debt

    1. The dollar value of securities purchased on margin within ...
  6. Cross Margining

    An offsetting position where market participants are able to ...
Related Articles
  1. Markets

    Explaining Marginal Revenue Product

    Marginal revenue product (MRP) accounts for the change in revenue that results from the addition of one extra unit, keeping all other factors equal.
  2. Investing

    What's Marginal Revenue?

    In microeconomics, marginal revenue is the additional revenue generated by increasing sales revenue by one unit. Another way of saying this is that the marginal revenue is the revenue generated ...
  3. Investing

    Contribution Margin

    Contribution margin is a cost accounting concept that allows a company to determine the profitability of individual products.
  4. Markets

    Understanding Marginal Analysis

    Marginal analysis is the process of comparing a one-unit incremental cost increase of an activity with a corresponding increase in benefits.
  5. Investing

    The Difference Between Gross and Net Profit Margin

    To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.
  6. Investing

    What’s a Good Profit Margin for a New Business?

    Surprisingly, the younger your company is, the better its numbers may look.
  7. Markets

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  8. Trading

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
  9. Investing

    How Gross Margin Can Make or Break Your Startup

    Find out how your startup's gross margin can impact your business, including why a mediocre margin may spell disaster for a budding business.
  10. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
RELATED FAQS
  1. Why do companies stop trying to increase marginal revenue?

    Learn what marginal revenue seeks to measure and understand why a company would want to stop increasing its marginal revenue ... Read Answer >>
  2. How is marginal revenue used in business planning?

    Understand what marginal revenue is and what it's used to measure. Learn how a company should use marginal revenue in its ... Read Answer >>
  3. How is marginal revenue related to the marginal cost of production?

    Learn about the marginal cost of production and marginal revenue and how the two measures are related when determining the ... Read Answer >>
  4. How does a company make a spending decision using marginal analysis?

    Understand how a company uses marginal analysis in its spending decisions. Learn the benefits of marginal revenue and marginal ... Read Answer >>
  5. What is the relationship between marginal revenue and total revenue?

    Learn what total and marginal revenue are, how to calculate marginal revenue given total revenue, and how marginal and total ... Read Answer >>
  6. What's the difference between profit margin and operating margin?

    Find out the differences between a company's gross profit margin, net profit margin and operating margin, and what each metric ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center