ECON 1011 Chapter Notes - Chapter 10: Marginal Revenue Productivity Theory Of Wages, Diminishing Returns, Marginal Revenue
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ECON 1011 Full Course Notes
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Document Summary
Derived demand, complementary and substitutable inputs, diminishing returns, and marginal revenue product. High productivity when a large amount of output is produced with per unit of input. Inputs: complementary and substitutable: two inputs can enhance or complement each other. Diminishing returns: in the short run, a firm that decides to increase input will eventually encounter diminishing returns. Fixed scale of plant means that marginal product of variable inputs eventually declines: marginal product of labor (mpl): additional output produced by one additional unit of labor. Marginal revenue product: marginal revenue product (mrp): additional revenue a firm earns by employing one additional unit of input (ceteris paribus) Px is the price over service (cost above the cost of inputs) A competitive firms marginal cost curve is the same as its supply curve. Similarly as before where p=mc, w=mrpl: deriving input demands. In making decisions, you compare marginal gains with input costs in the presence of diminishing returns.