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Marginal Revenue Product Machines

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Suppose that a firm has the opportunity to employ a new machine that will increase production by five units and will cost $10 to purchase. If each unit of output can be sold for $5, then the:

a) marginal revenue product of the machine is less than its cost, and the firm should not take advantage of the opportunity.

b) marginal product of the machine is exactly equal to the price of output, and the firm should therefore take advantage of the opportunity.

c) marginal revenue product of the machine is equal to $25, so the firm should take advantage of the opportunity

d) marginal revenue product of the machine is equal to $5, so the firm should take advantage of the opportunity.

e) none of the above.

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Solution Summary

The marginal revenue product machines are found. The revenue machines are determined for price of outputs.

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