If the marginal revenue product exceeds the marginal input cost, the firm can improve profitability by increasing the use of that input and the resulting increase in output. In determining if a firm is using the optimal level on an input If the marginal revenue product exceeds the marginal input cost, a firm can improve profitability by increasing the use of the input if the marginal cost of the input exceeds the marginal revenue product, profit can be improved by decreasing use of the input., the marginal revenue product for an additional unit of input can be compared to the marginal cost of a unit of the input. The marginal revenue product of an additional accountant would be 1500 times $100, or $150,000. For the example in the previous paragraph, suppose that at the current output levels, the marginal revenue from an additional billed hour of accountant service is $100. The marginal revenue product would be the result of multiplying the marginal product of the input times the marginal revenue of the output. of a production input is the marginal revenue created from the marginal product resulting from one additional unit of the input. The marginal revenue product The additional revenue created from one additional unit of an input the marginal product of the input times the marginal revenue of the output. For example, if an accounting firm sells accountant time as a service and each hired accountant is typically billed to clients 1500 hours per year, this quantity would be the marginal product of hiring an additional accountant. of a production input is the amount of additional output that would be created if one more unit of the input were obtained and processed. The marginal product The amount of additional output that would be generated if one more unit of an input were obtained and processed. This principle can be applied in determining the optimal level of any production resource input using the concepts of marginal product and marginal revenue product. In Chapter 2 "Key Measures and Relationships", we discussed the principle for profit maximization stating that, absent constraints on production, the optimal output levels for the goods and services occur when marginal revenue equals marginal cost. 4.5 Marginal Revenue Product and Derived Demand
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |