Marginal value product

Analogous to the marginal revenue product of an input, the marginal value product is a measure of the extra revenue which results from increasing the quantity of an input used by one unit, all other input quantities remaining constant. The marginal value product is found by multiplying the marginal product of the input by the price of the product. Where the price at which a firm sells its output is the same whatever the quantity sold, i.e. where the market is in perfect competition, marginal revenue is equal to price, since the revenue brought in by the sale of an extra unit of output is always equal to the price. Hence, in this case, marginal revenue product and marginal value product are equal, and the latter correctly measures the extra revenue brought in by increasing the quantity of an input used by one unit. lf the marginal product of an input is, say, 1,1 units, while its price is £2 per unit, then its marginal value product is f2 x1,1 = £2,2. If, however, the firm must reduce price in order to seil a greater quantity, i.e. if it is in imperfect competition, then marginal revenue will generally be less than price, and so marginal value product will overstate the extra revenue actually brought in by increasing the quantity of an input used by one unit. This extra revenue will be accurately measured by the marginal revenue product.

Reference: The Penguin Dictionary of Economics, 3rd edt.