This preview shows pages 1–3. Sign up to view the full content.
Lecture 16
Input Demand I
It's not whether you're right or wrong that's important, but
how much money you make when you're right and
how much you lose when you're wrong.
George Soros
The Economics Outline
1. Marginal Revenue Product
2. Marginal Expense
3. Comparative Statics (single input)
The Mathematics Outline
1. Algebra & Calculus
Profit Maximization (Yet Again)
This time let’s write the profit function as a function of
K
and
L
as follows:
)
,
(
)
,
(
L
K
TC
L
K
TR
−
=
π
The firstorder conditions for profit maximization are:
0
0
=
∂
∂
−
∂
∂
=
∂
∂
=
∂
∂
−
∂
∂
=
∂
∂
L
TC
L
TR
L
K
TC
K
TR
K
We might alternatively write these as:
L
TC
L
TR
K
TC
K
TR
∂
∂
=
∂
∂
∂
∂
=
∂
∂
In words, these equations say that the marginal revenue associated with hiring one more unit of
input must equal the marginal cost of that input.
Dr. Steven Waters
Econ 380
Page 1 of 5
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentL16: Input Demand I
Marginal Revenue Product (MRP)
The additional revenue from hiring another unit of input is called the
marginal revenue product
.
MRP
This is the end of the preview. Sign up
to
access the rest of the document.
 Spring '11
 Stevens

Click to edit the document details