Lecture 22 - 12/2/2009 25 Factor Demand factors demanded by...

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12/2/2009 1 Factor Demand ± factors demanded by profit maximizing firms ± firms use inputs to produce output ± output is sold, earning revenue ± demand for factor is derived demand ± examine impact of input use on revenue ± compare MB and MC 25 ± = MR • MP L ± marginal revenue product of labor, MRP L ± extra revenue earned from an extra unit of labor ± MRP L = Δ TR/ Δ L= ( Δ TR/ Δ Q)( Δ Q/ Δ L) ± MRP L gives the value of the input to the firm ± MRP L tells what the firm is willing to pay for the input 25 Factor Demand Labor (Hrs) Qty. Produced MP L (Q / Hr.) Output Price ($) Total Rev. ($) MRP L ($ / Hr.) 0 0 10 0 20 40 10 400 40 68 10 680 60 88 10 880 80 102 10 1020 100 111 10 1110 120 116 10 1160 140 118 10 1180 160 118 10 1180 2.0 1.4 1.0 .70 .45 .25 .10 .00 20.0 14.0 10.0 7.0 4.5 2.5 1.0 0.0 ± = MR • MP L ± marginal revenue product of labor, MRP L ± extra revenue earned from an extra unit of labor ± MRP = Δ TR/ Δ ( Δ TR/ Δ Q)( Δ Q/ Δ L) ± MRP L gives the value of the input to the firm ± MRP L tells what the firm is willing to pay for the input 25 Factor Demand Labor (Hrs) Qty. Produced MP L (Q / Hr.) 0 0 20 40 40 68 60 88 80 102 100 111 120 116 140 118 160 118 2.0 1.4 1.0 .70 .45 .25 .10 .00 ± = MR • MP L ± marginal revenue product of labor, MRP L ± extra revenue earned from an extra unit of labor ± MRP = Δ TR/ Δ ( Δ TR/ Δ Q)( Δ Q/ Δ L) ± MRP L gives the value of the input to the firm ± MRP L tells what the firm is willing to pay for the input 25 Factor Demand Labor (Hrs) Qty.
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Lecture 22 - 12/2/2009 25 Factor Demand factors demanded by...

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