(4) Optimal Variable Input Use Model
Optimal Input Use, Marginal Revenue Product, Marginal Physical Product, Marginal Factor Cost, Marginal Input Cost, Derived Demand
This presents the optimal variable input use model. It introduces the key concepts of Marginal Physical Product, Marginal Revenue Product, and Marginal Factor Cost. The optimal input rule is presented, and this is linked to information on production, demand for the final product, and the price in the input market.
Crane, Steven E., "(4) Optimal Variable Input Use Model" (2011). Principles of Microeconomics. Paper 33.
Ability to determine the optimal amount of a variable input in the short run. Ability to identify and explain Marginal Revenue Product and Marginal Factor Cost. Ability to explain what causes the optimal amount of variable input to change. Ability to explain the interplay of the output market, input market and production function in all of the above.
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