In this Decision Point activity, you explored the value of your labor and how you value other’s labor. Use what you learned in the decision point activity to answer the following question.
Ramone’s Drones Inc. makes local deliveries using small drones. Ramone is looking to hire an additional pilot to help with increased delivery needs. He currently brings in $8000 per month, but with the new pilot, thinks he’ll be able to increase his revenue to $9250 per month.
What is the monthly marginal revenue from hiring the additional pilot, which is referred to as the marginal revenue product of labor or MRPL?
MRPL: $ =
The Correct Answer and Explanation is :
The Marginal Revenue Product of Labor (MRPL) represents the additional revenue generated by employing one more worker. To calculate MRPL, we use the formula:
MRPL = Change in Revenue / Change in Labor
Given:
- Current Revenue: $8,000 per month
- Projected Revenue with Additional Pilot: $9,250 per month
- Change in Revenue: $9,250 – $8,000 = $1,250
- Change in Labor: 1 additional pilot
Calculation:
MRPL = $1,250 / 1 = $1,250
Therefore, the Marginal Revenue Product of Labor (MRPL) for hiring the additional pilot is $1,250.
Explanation:
The MRPL quantifies the additional revenue a business earns by employing one more worker. In this scenario, Ramone’s Drones Inc. anticipates that hiring an additional pilot will increase monthly revenue from $8,000 to $9,250, resulting in an increase of $1,250.
Understanding MRPL is crucial for businesses to make informed hiring decisions. It helps determine whether the revenue generated by an additional worker justifies the cost of hiring. If the cost of hiring the pilot (including salary, benefits, and other expenses) is less than $1,250, then hiring the pilot would be a profitable decision. Conversely, if the cost exceeds $1,250, it may not be financially advantageous.
In summary, the MRPL provides a metric for assessing the economic value of labor in a business context, aiding in strategic decisions related to workforce expansion.