Here are some important terms to know: Marginal Physical Product (MPP) -The physical output that is due to the addition of one more unit of a variable factor of production. The change in total product occurring when a variable input is increased and all other inputs are held constant. (Also known as marginal product ) Law of diminishing marginal product : The observation that after some point, successive equal-sized increases in a variable factor of production, such as labor, added to fixed factors of production will result in smaller increases in output. Marginal Revenue Product (MRP): The marginal physical product (MPP) times marginal revenue (MR) obtained from a one-unit change in labor input. Now let’s put these terms into use by solving some sample problems… Sample Problem: Calculating Marginal Physical Product (MPP) A bakery owner is considering how many bakers it needs each day. If there are no bakers working, then 0 donuts will be produced that d...
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