Detailed Answer
Correct answer: (C)
Marginal revenue product is the change in total revenue from using 1 more unit of a resource. In this
example, not only the marginal product is declining, but the average selling price is also declining. Therefore,
both factors will affect marginal revenue product. From 11 workers to 12 workers, the average selling price
decreases from $49.00 to $47.50. This is not the incremental selling price but the average selling price. To
calculate the change in total revenue requires multiplying the total number of product units by the average
selling price (for both levels) and then calculating the difference. Therefore, total revenue changes from 25
units × $49 = $1,225 to 28 units × $47.50 = $1,330. Thus, the marginal revenue product is $1,330 – $1,225
= $105.