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(Figure 10.1)
Derived Demand
Derived demand is a demand for resources (inputs) that is dependent on the demand for the outputs those resources can be used to produce.
Inputs
The productivity of an input is the amount of output produced per unit of that input. Complementary inputs are factors of production that can be used together to enhance each other. Substitutable inputs are factors of production that can be used in place of each other.
Marginal Revenue Product per Hour of Labour in Sandwich Production (Table 10.1)
Deriving a Marginal Revenue Product Curve from Marginal Product (Figure 10.2)
The marginal revenue product of labour is the price of output, Px, times the marginal product of labour, MPL. In competition, MRPL is the market value of labours marginal product. As long as output price is constant, the MRPL curve has the same downward slope as the MPL curve.
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Marginal Revenue Product and Factor Demand for a Firm Using One Variable Input (Labour)
(Figure 10.3) A competitive firm using only one variable factor of production will use that factor as long as its marginal revenue product exceeds its unit cost. A perfectly competitive firm will hire labour as long as MRPL is greater than the going wage.
The Two Profit-Maximizing Conditions Are Simply Two Views of the Same Choice Process
(Figure 10.4)
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Land Markets
Land has perfectly inelastic supply; the supply is strictly fixed. Demand-determined price refers to the price of a good that is fixed in supply; it is determined exclusively by what firms and households are willing to pay for the good. Pure rent is the return to any factor of production that is fixed in supply. The firm will use land up to the point where MRPH = PH where H is land (hectares).
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marginal revenue product (MRP) output effect of a factor price change productivity of an input pure rent substitutable inputs technological change