Land

Now, let's apply the marginal productivity approach to land. We may think of a potato farmer who is considering renting additional land to farm. How much land? Of course, that will depend on the rent per acre -- the price of land.

Using the general formulae for marginal productivity and the value of the marginal product from the previous page, we can define the marginal productivity of land as

that is, the increase in output (measured in bushels of potatos) divided by the corresponding increase in the number of acres of land used, while the other inputs do not vary.

The value of the marginal product of land will be

VMP_land=p*MP_land

where p, again, stands for the price of the output -- a bushel of potatos, in this case.

Continuing the example of producing potatos, the value of the marginal productivity (in the potato example) is the market value of the additional potatos produced on one additional acre of land. The farmer will increase the number of acres of land he rents until

VMP_land=price_land

And so the value of the marginal product of land is the demand curve for land of a standard quality.