The table below shows the total output produced by different units of a resource. Assume that the resource and output markets are both perfectly competitive. The equilibrium price of the resource is $15.00, and the equilibrium price of the product is $0.50.Table 14.2
Marginal revenue product (MRP) of a resource is the product of the marginal product of the resource and the marginal revenue.
-Refer to Table 14.2. What is the marginal revenue product of the third unit of the resource?
A)$6.50
B)$13.00
C)$17.50
D)$70.00
E)$20.00

Question

The table below shows the total output produced by different units of a resource. Assume that the resource and output markets are both perfectly competitive. The equilibrium price of the resource is $15.00, and the equilibrium price of the product is $0.50.Table 14.2
Marginal revenue product (MRP) of a resource is the product of the marginal product of the resource and the marginal revenue. 
-Refer to Table 14.2. What is the marginal revenue product of the third unit of the resource?
A)$6.50 
B)$13.00 
C)$17.50 
D)$70.00 
E)$20.00

Quizplus · Accepted Answer

The marginal product of the third unit of the resource is 20, and the marginal revenue is $0.50 (given). Therefore, the MRP of the third unit is 20*$0.50=$10. Since the equilibrium price of the resource is $15, and the MRP of the third unit is only $10, producers would not hire the third unit of the resource. The best choice would be for producers to hire only the first two units of the resource, where the MRP of each unit exceeds the equilibrium wage ($15 in this case).

The Table Below Shows the Total Output Produced by Different