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1/13

 

Marginal

Productivity

 Theory

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Marginal PhysicalProduct

Extra Output fromeach additionalunit of resource

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Marginal Revenue

Product

Price x Extra OutputChange in Total RevenueResulting from the use of

each additional unit ofresource

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See Overhead 4.

 Perfect competition

!dding one varia"leresource # la"or

Columns and $

demonstrate the la% ofdiminishing returns

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&a% of 'iminishingReturns

!s successive increments ofa varia"le resource (la"or)are added to a *xed resource+the marginal product of the

varia"le resource %illeventually decrease.

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arg na esourceCost

 !mount %hich each

additional unit ofresource adds to a

*rms total (resource)cost

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MRP,MRC Rule

 -t is pro*ta"le for a *rm

to hire additional unitsof a resource up to thatpoint at %hich that

resources MRP,MRC

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8/13 

MRP,MRC

and

MR,MC

Rationale the same

/T point of reference

is no% inputs of a resource

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8/17/2019 Ch 27 a Marginal Productivity

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mper ec a orMar0et

 2irm is a price ma0er

 Pure monopoly+ oligopoly+monopolistic competition

 'o%n%ard sloping demand

curve

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MRP of competitive

seller falls for onereason3 

Marginal Productdiminishes

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MRP of -mperfectly

competitive seller falls fort%o reasons3

5 Marginal Product diminishes

65 Product price falls as outputincreases

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Conclusions

 2or revie% chec0 out

chapter 67pages 8$458$9

 Ta"les 675 and 6756same as overheads