01:220:102 Lecture Notes - Lecture 13: Marginal Revenue, Perfect Competition, Demand Curve
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1. mportant Concepts
1. Marginal Revenue Product (MRP)
1. A downward sloping demand curve that tells the firm hiring (ex. labor)
what that resource contributes to the revenue of the firm at the margin
of each additional unit
2. Equation:
1. MRPL = MPPL x MRX
2. MRX is PX in perfectly competitive product markets
3. x is the product produced
2. Marginal Factor Cost (MFC)
1. The cost of each additional unit of resource utilized by the firm
3. Profit Maximization
1. More of the resource should be added until MRP = MFC
2. For more than one resource:
1. MRPL = MRPK … MPPN = 1
MFCL MFCK MFCN
2. L – labor
3.
4. K – capital
5. wage rate can substitute for MFC in a perfectly competitive
market
4. Cost Minimization
1. Criterion:
1. MPPL = MPPK … MPPN
MFCL MFCK MFCN
2. wage rate can substitute for MFC in a perfectly competitive
market
5. Derived Demand
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