ch13 - Chapter 13 How factor markets work Outline Profit...

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How factor markets work Outline Profit maximizing factor use o Exercise 13.1: Profit maximizing factor use Factor mobility Profit maximizing factor use Marginal revenue product (MRP) is the added revenue from each additional factor unit hired and equals MR×MPP where… MR (Marginal revenue) is the added revenue from each additional unit of output. MP (Marginal physical product) is the added output each additional factor unit hired. Marginal factor cost (MFC) is the added cost of each additional factor unit hired which equals the. .. …factor price (e.g. wage rate (w)) if the firm is a price-taker in factor markets. The profit maximizing factor use involves… setting MFC = MRP. ______ factor use if MFC < MRP ______ factor use if MFC > MRP If the firm is a price taker in factor markets then… w = MRP w = P×MPP if firm takes output price as given the firm’s factor demand curve is the MRP curve which slopes down due to… …falling MP (all firms)
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ch13 - Chapter 13 How factor markets work Outline Profit...

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