Lecture 16 - Lecture 16 Input Demand I It's not whether...

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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 first-order 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
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L16: Input Demand I Marginal Revenue Product (MRP) The additional revenue from hiring another unit of input is called the marginal revenue product . MRP
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Lecture 16 - Lecture 16 Input Demand I It's not whether...

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