A firm will maximize profits by employing the quantity of each input where the marginal:

Question

Quizplus · Accepted Answer

Maximizing profits requires that the marginal revenue product (MRP) of each input equals its price. This is because the MRP represents the additional revenue generated by using one more unit of that input, while the price represents the additional cost of using one more unit. Therefore, if MRP is greater than price, using one more unit will increase profits, and this should continue until MRP equals price. If MRP is less than price, using one less unit will increase profits, and this should continue until MRP equals price. By finding the point where MRP equals price for each input, the firm can maximize profits.

A Firm Will Maximize Profits by Employing the Quantity of Each