Maximum efficiency is achieved here But this point

Maximum efficiency is achieved here But this point does not necessarily correspond to maximum profits In order to know the most profitable level of production, it is necessary to know the marginal (incremental) revenue, marginal (incremental) cost, marginal product in terms of money

Marginal revenue is the extra revenue obtained from selling one more unit Marginal cost - the additional costs while increasing output by one additional unit of output If the unit price remain unchanged, then marginal revenue is simply the price per unit

Marginal product is the additional amount of product received as a result of the use of one additional unit of variable input factor of production Marginal product in the monetary form - additional income resulting from using of one additional unit of variable input factor of production

ЕХ: ] additional production, when taking into account only labor, per hour (МРL) is equal to 50 units and the products are sold at a price of $ 0.5 per unit (МRQ): Marginal product in the monetary form : MRPL = 0,5$ х 50 = 25$ => each additional hour of labor brings 25$ income If additional costs for labor are less than 25$ per hour, then the firm can earn additional income and additional profit

Getting profit by attracting labour force will occur until The condition for profit maximization: MRPX = PX the marginal product in terms of money numerically will be greater than or equal to the price of labour

The condition for profit maximization: MRPX = PX the profit is maximum when marginal cost equals marginal revenue MCQ = ∆TC / ∆Q = (Px x ∆X) / ∆Q = Px (∆X / ∆Q) = Px / MPx = MRQ

Each of the two factors in the ultimate product, expressed in cash (MRQ and MPx) can be either variable or constant If this company deals with the production, which is characterized by gently lowering demand curve, in this case, marginal revenue is variable, decreasing with increasing output or increasing volume of sales

MRQ If the firm sells its products on the market, which itself sets the price, than marginal revenue is constant

Marginal product may vary due to the law of diminishing returns But it could be permanent: the law of diminishing returns does not apply to some factors of production MPx

ЕХ: the company produces cars. Input factor of production - 4 wheel, allows to obtain the marginal product in the form of the car. This marginal product will never change

The unit price of the input factor of production, Px, can also be variable in the sense that it can and will change over time However, at any given point in time, it will have a certain value that will determine the optimal level of output Рх MRPX = PX

Marginal product in the monetary form : Marginal product in the form of money represents the change in total revenue per additional unit of input factors of production

Westland Electronics