Chapter 19 - Pricing the Factors of Production

Chapter 19 - Pricing the Factors of Production - Chapter 19...

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Chapter 19 Pricing the Factors of Production Rent is that portion of the produce of the earth which is paid  to the landlord for use of the original and  indestructible powers of the soil. DAVID  RICARDO
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Factors of Production Factors of production Productive inputs Land Labor Capital Exhaustible natural resources Entrepreneurship 2
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Factors of Production Entrepreneurship Starting new firms Introducing new products Technological innovations Taking the risks - business opportunities 3
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The Principle of Marginal Productivity Marginal physical product (MPP), input Increase in output From: one-unit increase in input All other inputs – constant Marginal revenue product (MRP), input Money value – additional sales Selling marginal physical product of input 4
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Naomi’s natural farm schedules for TPP, MPP, APP, and MRP of corn Table 1 5 (1) (2) (3) (4) (5) Corn Inputs (bags) TPP: Total Physical Product (chicken, lbs) MPP: Marginal Physical Product per Bag APP: Average Physical Product per Bag MRP: Marginal Revenue Product per Bag 0 1 2 3 4 5 6 7 8 9 10 11 12 0.0 lbs 14.0 36.0 66.0 100.0 130.0 156.0 175.0 184.0 185.0 180.0 165.0 144.0 0.0 lbs 14.0 18.0 22.0 25.0 26.0 26.0 25.0 23.0 20.6 18.0 15.0 12.0 14.0 22.0 30.0 34.0 30.0 26.0 19.0 9.0 1.4 -5.4 -15.0 -21.0 $10.50 16.50 22.50 25.50 22.50 19.50 14.25 6.75 1.05 -4.05 -11.25 -15.75
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The Principle of Marginal Productivity Marginal productivity principle Competitive factor markets Profit-maximizing firm Hire / buy quantity of input MRP = Price of input Quantity demanded of input Declines as input price rises 6
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Chapter 19 - Pricing the Factors of Production - Chapter 19...

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