Microeconomics,, 16th Canadian Edition

(rishikesh) #1

  1. The marginal revenue produced by the factor involves two
    elements: first, the additional output that an extra unit of the
    factor produces and, second, the change in price of the product
    that the extra output causes. Let Q be output, R revenue, and
    the number of units of the variable factor hired. The contribution
    to revenue of additional labour is. This, in turn, depends
    on the contribution of the extra labour to output (the
    marginal product of the factor) and the contribution of the extra
    output to revenue (the firm’s marginal revenue). Thus,


We define the left-hand side as marginal revenue product, MRP
Thus,


  1. The proposition that the marginal labour cost is above the
    average labour cost when the average is rising is essentially the
    same mathematical proposition proved in note 15. Nevertheless,
    let us do it again, using elementary calculus.
    The quantity of labour supplied depends on the wage rate:


. Total labour cost along the supply curve is
average cost of labour is. The marginal cost of
labour is


∂R/∂L
∂Q/∂L

∂R/∂Q

∂∂RL = ∂∂QL ⋅∂∂RQ

MRP =MP⋅MR

Ls=f(w) w⋅Ls
(w⋅Ls)/Ls=w
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