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Table 16.3
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6 gives the marginal revenue product. It is obtained from the increase in the total revenue in column 5. b. The MPP that results from employing each additional unit of the variable resource (together with xed amounts of other resources) declines because of the law of diminishing returns. The MRP declines because MPP declines. We know that this rm is a perfect competitor in the product market because product price remains constant at \$1 per unit regardless of the quantity of the product sold by the rm. Solved Problem 16.3 Explain how much of each variable resource a rm should hire in order to maximize total pro ts, if the rm is an imperfect competitor in the resource markets. Solution: When an imperfect competitor in the resource markets wants to hire more of a resource, it will have to pay a higher price, not only on the additional units of the resource but also on all previous units of the resource hired. Thus, the increase in the total costs of hiring an additional unit of the resource or marginal resource cost (MRC) exceeds the resource price. The rm will maximize total pro ts when it hires variable resources as long as each resource MRP exceeds its MRC and until they are equal. With variable resources labor (L) and capital (K), the rm maximizes total pro ts when MRPL = MRCL and MRPK = MRCK. Another way of stating the pro t-maximizing condition is to say that a rm should hire resources until the MRP per dollar spent on each resource is the same. Once again, this rule can be extended to any number of variable resources.
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Wage Determination Unions and Wage Differentials Rent Interest Pro ts Epilogue on Commodity and Resource Pricing True or False Questions Solved Problems Wage Determination
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The wage rate refers to the earnings per hour of labor. The wage rate divided by the price index gives the real wage rate or purchasing power of wages. We are primarily concerned with real wages.
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