How to Calculate MPK

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MPK, or Marginal Product of Capital, is the production increase for adding one more unit of capital. It is used in microeconomics to determine the best ratio of labor to capital for a perfectly efficient firm. It can also be described as the change in capital over the change in production when labor is held the same. You will need to know the capital used at two different production levels to calculate the MPK.

Subtract the capital at the higher production level from the capital at the lower production level to get the change in capital. As an example, take the widget company that produces 100 units with $1,500 in capital and 130 units with $1,700 in capital. Its change in capital is $1,700 - $1,500 = $200.

Subtract the higher production level from the lower production level to get the change in production level. The change in production for the example widget company is 130 – 100 = 30.

Divide the change in capital by the change in production to get the MPK. The MPK for the widget company is $200 / 30 = 6.67.

Tips & Warnings

  • Minimum production costs occur when the Marginal Product of Labor divided by the cost of one unit of labor is equal to the MPK divided by the cost of one unit of capital.

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References

  • McConnell, Campbell and Stanley Brue. “Microeconomics.” New York: McGraw-Hill, 2008.
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