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Unformatted text preview: product of labor falls (too many cooks in the kitchen) x If you hire (rent) more grills, but dont add any more cooks, the marginal product of capital falls (grills sit idle) . Given the technologies available, a profit-maximizing firm: x hires labor up to the point where the wage equals the price times the marginal product of labor (MPL) x hires kapital up to the point where the rental rate on kapital equals the price times the marginal product of kapital (MPK) Cost Total Revenue Total ( Profits ) rK wL L) X(K, x p at profit maximum: MPL x p w MPK x p r Page 89...
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- Fall '10