Asked by Santiago Quirós on Jun 03, 2024
Verified
A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm:
A) can increase profit by reducing the employment of the factor of production.
B) is now maximizing profit.
C) should not use this factor of production because it has no potential in generating a profit.
D) can increase profit by expanding the employment of the factor of production.
Marginal Expenditure
Additional cost of buying one more unit of a good.
Factor of Production
Resource inputs used in the production of goods and services, typically categorized into land, labor, capital, and sometimes entrepreneurship.
Marginal Revenue Product
The additional revenue generated from using an additional unit of a resource or input.
- Understand the implications of changes in input costs on the profit maximization strategy of firms in a competitive market.
Verified Answer
ZK
Zybrea KnightJun 05, 2024
Final Answer :
D
Explanation :
Since the MRP (Marginal Revenue Product) is greater than the marginal expenditure for the factor, this implies that the firm is still gaining additional revenue by using more of the factor of production. Therefore, the firm can increase its profit by expanding the employment of the factor of production.
Learning Objectives
- Understand the implications of changes in input costs on the profit maximization strategy of firms in a competitive market.
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