This page explains how to compute the extra revenue a firm gains from an additional unit of a resource and the extra cost of hiring it, using information presented in tables or read directly from graphs.

Core quantities you must be able to calculate

MRP is a marginal concept, so it is computed using changes between adjacent output or employment levels, not totals by themselves.

MRC focuses on how total resource expenditure changes when the firm increases the quantity of the input it hires.

Equations you will use (and what each term means)

A common AP-style variation is using discrete changes from a table (finite differences) rather than the symbolic $MP$ and $MR$ components.

Between these two MRP formulas, use whichever matches the data you are given: if you have $MP$ and $MR$, multiply; if you have $TR$ by labour level, take changes.

In many problems, $TC_R$ is “wage $\times$ number of workers” or a similar spending measure for the input being hired.

Calculating MRP from a table

Use the information the table provides; do not invent extra steps.

If the table gives output and output price (and the firm is a price taker in output)

• Compute total revenue at each employment level: $TR = P \times Q$.

• Compute marginal revenue product between adjacent employment levels: $MRP = \Delta TR / \Delta L$.

• Keep units straight: MRP should end up in dollars per worker (or per labour-hour).

If the table gives marginal product and marginal revenue

• Use $MRP = MP \times MR$ for each employment level where $MP$ is defined.

• If the table instead gives output price and the firm is a price taker, then $MR = P$ and $MRP = MP \times P$.

Common interpretation checks (not extra calculations)

• If marginal product eventually falls, MRP will typically fall as well (unless $MR$ rises enough to offset it).

• Negative $MP$ implies negative $MRP$ (the extra input reduces output and revenue).

Calculating MRC from a table

MRC depends on how the input’s price changes as the firm hires more.

If the wage/input price is constant in the table

• Total resource cost rises proportionally with the input: $TC_R = w \times L$.

• Then $MRC$ equals that constant per-unit price (because each extra unit costs the same).

If the wage/input price rises with additional units hired

• Compute total resource cost at each level: $TC_R = w(L)\times L$ (use the wage shown for that level times the number of units).

• Then compute $MRC = \Delta TC_R / \Delta L$ between adjacent levels.

• Expect $MRC$ to be higher than the wage of the last unit when hiring more requires raising pay on multiple units.

Reading MRP and MRC from graphs (no arithmetic required)

When graphs are provided, calculations often mean “identify the correct value” at a given quantity.

This two-panel figure contrasts a perfectly competitive labor market with a monopsonistic labor market using the same core curves ($MRP$, labor supply, and $MRC$). The comparison makes clear that the firm’s hiring decision is found where $MRP$ meets $MRC$, but the wage paid is read from the relevant supply/wage line in each market structure. Source

• On an MRP graph: at a specific labour quantity on the horizontal axis, read the corresponding dollar value on the vertical axis.

This figure graphs the marginal revenue product of labor (MRP) against the quantity of labor, showing a downward-sloping MRP schedule. It visually reinforces that MRP is the firm’s marginal benefit from an additional worker, so the height of the curve at any labor quantity is the extra revenue generated by that last unit of labor. Source

• On an MRC graph: at the same labour quantity, read the additional-cost value from the MRC curve (not necessarily from the wage/supply curve).

This monopsony labor-market diagram shows the upward-sloping labor supply curve $S$ and a steeper marginal resource cost curve $MRC$ lying above it, alongside the downward-sloping $MRP$ curve. It illustrates why the extra cost of hiring one more worker can exceed the posted wage when raising the wage affects multiple workers’ pay. Source

• If both curves are shown, ensure you are reading the value from the correct curve at the stated quantity of labour.