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Derived Demand
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The MRP
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MRP
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The additional revenue a business receives from hiring one more unit of a resource.
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MRP = MP x MR
MRP = Change in total revenue / change in quantity of resources
MRP = Change in total revenue / change in quantity of resources
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MRP formulas
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Determinants of MRP
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Product price and demand
Productivity of a resource
Price of subsittute resources
Productivity of a resource
Price of subsittute resources
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MRP and Product Price and Demand
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Increase in product demand means there is more demand for the economic inputs used to make the product.
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MRP and Productivity of a resource
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If resource is productive, the firm wants to employ more of it.
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MFC
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The addiction cost of employing more unit of resource
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MFC in a Perfectly Competitive Market
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MFC = price of economic resource and is therefore the wage rate.
Since firm is a "wage taker" the firm's supply curve is perfectly elastic.
Since firm is a "wage taker" the firm's supply curve is perfectly elastic.
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Cost-minimizing Combination
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MP labor / P labor = MP capital / P capital
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Profit-maximizing combination
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MRP labor / P labor = MRP capital / P capital
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