In class, we covered the new concept that marginal revenue price must equal marginal revenue cost in order to maximize profits. However, this is difficult to understand without understanding why and what each term means. To start, marginal revenue cost is defined as the change in total resource cost per additional unit of resource. The marginal revenue product is defined as the change in total revenue per additional unit of resource.
To understand why MRP must equal MRC, we should go back to a previous topic we understand, marginal revenue equals marginal cost. The reason why the profit-maximizing price is when the marginal revenue is equal to the marginal cost is that when a firm sells at a price where marginal revenue is greater than marginal cost, the firm will earn a profit for that additional unit of output. They will continue to sell until MR = MC, as if they go further, the marginal costs will outweigh marginal revenue, which will lead to a loss. In similar fashion, a profit-maximizing firm will sell where marginal revenue product equals marginal revenue cost because they will continue to add resources when the marginal revenue product is greater than or equal to the marginal revenue product when MRP = MRC.
As a result, you can think of marginal revenue product equaling marginal revenue cost being the same thing as MR = MC, except that it refers to the input of resources rather than the output of resources.
https://thismatter.com/economics/resource-markets.htm
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This is a really great blog! I really like how you relate this back to a previous topic we covered about MC = MR. Being able to think about this new idea with familiar concepts makes it much easier to comprehend and analyze. You do a great job of explaining why this point is the profit maximization point, and it is very useful to truly understand why it is this point, rather than just memorizing the point itself.
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