Marginal value product
Marginal value product (MVP, also marginal revenue product) is the market value of the output resulting from one additional unit of input
The marginal value product can be computed by multiplying the marginal product by the unit selling price of the additional output.[1]
Discounted marginal value product
The discounted MVP is simply the present market value of the (future) MVP.
Suppose, for example, that an additional hour of labor will generate $110 of additional revenue in one year's time. The MVP of this factor is $110. But this is a future good. The present value of the future good, and it is this present value that is now being purchased, will be equal to the MVP discounted by the going rate of interest. If the rate of interest is 10 percent, then the discounted MVP will be equal to $100. A prospective employer will pay no more than $100 today to hire this worker.[2]
References
- ↑ "What is marginal value product? definition and meaning", Business Dictionary.com, referenced 2014-11-16.
- ↑ Robert P. Murphy. A Study Guide to Murray Rothbard's Man, Economy, and State, with Power and Market for "Chapter 7: Production: General Pricing of the factors" by Murray N. Rothbard. Referenced 2014-11-16.
Links
- 7.02. Determination of the Discounted Marginal Value Product (audio, narrated by Jeff Riggenbach) from Man, Economy, and State
- The DMVP-MVP Controversy: A Note (pdf) by Walter Block, 1990
- "Should the Productivity Norm Determine Wages?" by Philipp Bagus, May 2004
