Question

Total Revenue of 10 labourers is Rs. 1,000. When 5 labourers are increased their Total Revenue becomes Rs. 1,500. Calculate Marginal Revenue.

Hint:

When revenue is given in relation to an input (like labor) instead of output, the concept is Marginal Revenue Product (MRP), not just Marginal Revenue (MR). MRP measures the productivity of an input in monetary terms.

Answer 1

Step 1: Understanding the Concept:
The question asks to calculate "Marginal Revenue" when the input (labour) is changed. This is more accurately termed the Marginal Revenue Product of Labour (MRP\(_L\)). It measures the change in total revenue resulting from employing one additional unit of labor.

Step 2: Key Formula or Approach:
The formula for Marginal Revenue Product of Labour is: \[ MRP_L = \frac{\text{Change in Total Revenue } (\Delta TR)}{\text{Change in Quantity of Labour } (\Delta L)} \]

Step 3: Identifying the Given Values:
\begin{itemize} \item Initial number of labourers (\(L_1\)) = 10 \item Initial Total Revenue (\(TR_1\)) = Rs. 1,000 \item Increase in labourers = 5 \item New number of labourers (\(L_2\)) = 10 + 5 = 15 \item New Total Revenue (\(TR_2\)) = Rs. 1,500 \end{itemize}

Step 4: Calculating the Changes:
\begin{itemize} \item Change in Total Revenue (\(\Delta TR\)) = \(TR_2 - TR_1\) = 1,500 - 1,000 = Rs. 500 \item Change in Quantity of Labour (\(\Delta L\)) = \(L_2 - L_1\) = 15 - 10 = 5 labourers \end{itemize}

Step 5: Calculating Marginal Revenue Product:
Substituting the values into the formula: \[ MRP_L = \frac{500}{5} = 100 \] This means that, on average, each of the 5 additional labourers added Rs. 100 to the total revenue.

Step 6: Final Answer:
The Marginal Revenue (or more accurately, the Marginal Revenue Product per labourer) is Rs. 100.