Marginal revenue product (MRP) is the extra revenue a business makes by hiring one additional worker, assuming other production factors remain the same.

It is calculated using the following formula:

MRP = marginal product × marginal revenue

According to MRP theory, a business that wants to maximize profit will hire workers until the MRP equals the wage rate:

• If MRP is higher than the wage, hiring more workers will increase the business’s profit.
• If MRP is lower than the wage, the business should hire fewer workers.

In a perfectly competitive market, the MRP curve acts as the labour demand curve for the firm.