In a bakery, hiring one more baker increases output from 1250 breads to 1400 breads per day, but the price per bread falls from Rs 15 to Rs 14 to sell the higher output. What is the marginal revenue product of this last baker?

Introduction / Context:
Marginal revenue product is an important concept in the theory of factor pricing. It measures the additional revenue that a firm earns by hiring one more unit of a factor of production, such as an extra worker. In imperfect competition or when price changes with output, we must calculate the change in total revenue rather than simply multiplying the marginal product by a fixed price. This question uses a simple bakery example to test whether the learner can compute marginal revenue product correctly when both quantity and price change.

Given Data / Assumptions:
• Initial daily output of the bakery is 1250 breads. • The initial price per bread is Rs 15. • After hiring one more baker, daily output rises to 1400 breads. • To sell the extra output, the price per bread must fall to Rs 14. • We must calculate marginal revenue product of the last baker as the change in total revenue.

Concept / Approach:
Marginal revenue product of labour is defined as the change in total revenue divided by the change in the number of workers. When we hire exactly one additional worker, marginal revenue product is simply the new total revenue minus the old total revenue. In this case, price falls as output increases, so we cannot multiply marginal physical product by the original price. Instead we compute total revenue before hiring the extra worker and total revenue after hiring the extra worker, and then find the difference between these two values.

Step-by-Step Solution:
Step 1: Compute initial total revenue. Initial output is 1250 breads and initial price is Rs 15, so initial total revenue is 1250 * 15. Step 2: Calculate 1250 * 15. This gives Rs 18750. Step 3: Compute new total revenue after hiring the additional baker. New output is 1400 breads and the new price is Rs 14, so new total revenue is 1400 * 14. Step 4: Calculate 1400 * 14. This gives Rs 19600. Step 5: Marginal revenue product of the last baker is new total revenue minus old total revenue, which is 19600 minus 18750. Step 6: Subtracting 18750 from 19600 gives Rs 850, so the marginal revenue product of the additional baker is Rs 850.

Verification / Alternative check:
To check the calculation, re do the multiplication mentally or with a simple breakdown. For 1250 * 15, think of 1000 * 15 equals 15000 and 250 * 15 equals 3750, so total is 18750. For 1400 * 14, think of 1000 * 14 equals 14000 and 400 * 14 equals 5600, so total is 19600. The difference between 19600 and 18750 is clearly 850. Since we added exactly one worker, this difference is exactly the marginal revenue product of that worker, which confirms our result.

Why Other Options Are Wrong:
Rs 150 is only the change in price per unit times a round number and has no direct relation to the change in total revenue calculated using the data given.
Rs 1960 would correspond to wrongly using marginal physical product of 1400 minus 1250, which is 150, multiplied by the new price 14, without considering that the lower price applies to all units, not just the extra ones.
Rs 1875 is the initial total revenue, not the change in revenue, so it cannot represent the marginal revenue product of the additional baker.

Common Pitfalls:
A common mistake is to compute marginal revenue product by multiplying the marginal physical product by the original price, which is only correct under perfect competition when price does not change with output. Another error is to forget that the lower price now applies to all units sold, so the impact on existing output must be included. Exam questions are often designed to test whether the learner understands this subtle difference between marginal revenue product under constant price and under changing price conditions.

Final Answer:
The marginal revenue product of the last baker, based on the change in total revenue, is Rs 850 per day.