MRP: The Reason I Deserve A Raise

In class, we are just getting into the ideas of marginal revenue product and how it influences firms to make certain decisions. Just as a recap, MRP is basically how productive and useful a certain good or service is. For example, if hiring a new employee means I will be able to manufacture 10 more computers per day, the MRP of that employee is 10 computers. On the contrary, if hiring that same employee would result in a negative MRP, it is very clear that I do not want to hire that worker. Now that we are familiar with how marginal revenue product works, we can discuss how this applies to our daily lives.

For those of you with a job, this idea should be very relevant to you. Money is very important to all of us, but it becomes more valuable when you know you worked hard for the money you receive through a job or other service you are completing. Yet, while minimum wage and other payments usually compensate for our hard work and time spent completing this task, there are times when it does not cut it. We might believe that the work being put in is worth much more than the payment we are receiving. Thus, we introduce the idea of MRP. If I know how productive I am being, and I know how much I am benefiting my company, then I am able to quantify how much I should get paid for my work. For example, I work in a restaurant and let's say I can buss 2 tables every minute. If I get paid minimum wage for my work, then I can say that my work is worth minimum wage. However, if I were to work extra hard and could now buss 4 tables every minute, doubling my productivity and thus doubling the number of customers my restaurant receives, then my MRP increases. As a result, I am now worth more to my restaurant and should be compensated accordingly.

Marginal revenue product does not only apply to wages for employees. This idea of figuring out how useful a certain resource would be given its price is something that all companies must consider when spending money. Breaking big decisions down into simple numbers is what makes economics so useful, and MRP is one very helpful way in which companies can accurately evaluate their business plan.