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What is MRP with respect to Finance?

Additional revenue generated as a result of addition of a new machine, software, person, business location or any other resource is known as Marginal revenue product or MRP. All these additions are known as inputs.  

It is calculated as a product of marginal products of the input and marginal revenue of the output (MP*MR).  

What’s the difference between marginal revenue product and marginal revenue?

Marginal Revenue Product

  1. Marginal revenue product is defined as aggregate revenue obtained after additions in the the resource input (manpower, machines, software etc.)

  2. It measures the change for every unit change in the resource or change in the variable input.

Example: Suppose addition of 4 machines resulted in a profit of 20000 rupees. Then the marginal revenue will be calculated as 20000/4 (revenue for unit change) that is 5000 rupees.

Marginal Revenue 

  1. Marginal revenue is defined as the additional profit generated by selling an one extra unit of goods and services.

  2. Companies seeking to maximize profit produce goods and services up to the point that marginal cost equals marginal revenue. Cost benefit analysis is done when marginal revenue falls below marginal cost. 

Example: Suppose the total revenue obtained by 20 products is 20000 rupees and selling one additional unit of product results in a total profit of 21500, then in this case the marginal revenue of that extra product is 1500 rupees. Marginal revenue is always equal to less than average revenue.

Also read : What is the full form of GST in India ?

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