Explain briefly and concisely the meaning and significance of the following equation:
What will be an ideal response?
This equation shows the profit-maximizing combination of resources, labor and capital in this case, that a firm should employ. It states that the firm should employ both labor and capital up to the point that their marginal revenue products are just equal to their prices, that is, their ratio is equal to 1. If these fractions were greater than one, it would mean that the firm could profitably employ more units of the resources because it would add more to its revenue than to its cost. If these fractions were less than one, it would mean the firm should employ less of the resources because their marginal revenue products are below their marginal cost.
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Which of the following would cause a currency to depreciate in a flexible exchange rate market?
a) Rising domestic interest rates. b) Reduced demand for imported goods. c) Increased investment abroad. d) A surge in foreign demand for a country's goods.
Supply-side economics
a. was the policy prescriptions President Clinton used to create budget surpluses b. challenged the views on taxes held by President Bush's (1988–92) chief economic adviser, Arthur Laffer c. was popularized as Reaganomics during President Reagan's administrations d. challenged the view that supply creates its own demand e. advocates crowding out to curb government spending