【北京大学-光华管理学院-经济学】Lecture 12-Factor Input Demand-王老师.pdfVIP

Chapter 12 Factor Input Demand Hui Wang, Dept. of Applied Economics, GSM, Peking University. Outline 1. Input Demand for Profit-maximizing Firms 2. Substitution among Factor Inputs 3. Firm’s and Market’s Factor Demand Outline 1. Input Demand for Profit-maximizing Firms 1.1 Marginal Revenue Product • Marginal Revenue Product (MRP) of input A is the additional revenue produced by an additional unit of input A • Calculation: – Adding another unit of input (labor) increase firm’s production by MPi – Sale of each addition unit of output increase firm’s revenue by MR – Therefore: MRP = MP ×MR i Market Structure Marginal Revenue (MR) Marginal Revenue Product (MRP) Perfect Competition MR=P MRP = MP ×P i Imperfect Competition MR(q) depends on the MRP = MP ×MR i specific output level 1.2 Input Demand for Profit-maximizing Firms • Adding another unit of input is a “marginal change” • According to the marginal principle, as long as “benefit of adding the unit of input i” “cost of adding the unit of input i” i.e. MRP = MP ×MR Price of factor i i i the firm should increase additional unit of factor input • As factor input↑, marginal productivity ↓, eventually MRP = Price of factor i i