Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases
B
It remains the same
C
It increases
D
It becomes negative
Understanding the Answer
Let's break down why this is correct
Answer
When a firm increases the price of its product but keeps the output the same, the marginal revenue product (MRP) can change. Marginal revenue product is the extra money made from selling one more unit of a product, calculated by multiplying the price of the product by the marginal product of labor, which is how much additional output one more worker produces. If the price goes up, the revenue from selling each unit increases, meaning that even if the output doesn’t change, the MRP can increase. For example, if a firm sells a toy for $10 and then raises the price to $12, the MRP for each worker remains higher because they are now generating more money for the same amount of toys produced. Therefore, increasing the price while keeping output constant typically raises the marginal revenue product.
Detailed Explanation
When a firm raises the price, it earns more money for each unit sold. Other options are incorrect because Some might think that raising the price lowers the extra revenue; It's easy to think that if output stays the same, revenue stays the same too.
Key Concepts
Output Price Fluctuations
Topic
Calculating Marginal Revenue Product
Difficulty
easy level question
Cognitive Level
understand
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