Mod 5.3: Profit Maximization in Factor Markets

Marginal revenue product is:

• the revenue received from sales

• the additional cost of producing an additional unit of output

• the change in total revenue created by the production from one more unit of labor or capital

• the marginal benefit provided by an additional unit of output

• always increasing as more output is sold

The cost-minimization rule says that firms should hire inputs until the --- is equal for all inputs.

• marginal revenue per dollar

• marginal cost per dollar

• average total cost per dollar

• wage per worker

• marginal product per dollar

Vending machines replacing sales clerks is an example of --- substituting for ---.

• physical capital, human capital

• land, labor

• physical capital, labor

• entrepreneurship, physical capital

• machine, man

If an increase in the amount of capital employed by a firm leads to an increase in the marginal product of labor, labor and capital are considered

• independent.

• complements.

• substitutes.

• supplements.

• human capital.

If a firm is producing at the optimal level &
marginal product of labor per $ > than the marginal product of capital per $:

• it should employ more labor and less capital.

• it should employ more land and labor.

• it should increase its level of output.

• it should employ more capital and less labor

• it should shut down.