If the marginal revenue product of an input is greater than its price, the
A)firm should decrease its use of the input to bring the two values into equality.
B)firm should raise the price of the product.
C)firm should increase the use of the input to bring the two values into equality.
D)firm should search for another input to use in its production.

Question

Quizplus · Accepted Answer

If the marginal revenue product of an input is greater than its price, it means the input is generating more revenue for the firm than it is costing them. In order to maximize profits, the firm should increase its use of the input to generate more revenue and bring the two values closer to equality. Decreasing the use of the input would result in lost revenue and searching for another input may not be cost-effective. Raising the price of the product may not necessarily be a feasible option.

If the Marginal Revenue Product of an Input Is Greater