output
w = 20
p=5
Slope = w/p = 4
X = 22, ℓ1=2
Producer Model: Price Decrease
Given:
w, p, production frontier
price decrease
from 5 - 4
Production
frontier
Profit
decrease
w = 20
p=4
Slope = 5
X = 18, ℓ2=1
What is Profit in both
scenarios?
22 x 5 – 20 x 2 = 110 – 40 = 70
ℓ2=1
ℓ1=2
input
$MRPL
18 x 4 – 20 x 1 = 72 – 20 = 52
Why does the
MRP change?
w=20
Chapter 11A.4 Video 11.5
Select:
Output (X), Labor (ℓ)
to maximize: Xp – Lw
ℓ2
ℓ1
Input
1
Impact of Price Decrease
output
w = 20, p = 5, slope = 4
w = 20, p = 10, slope = 2
18
15
Profitnew = 18x10 – 4x20 = 100
100/10 =10
Profitold = 15x5 – 3x20 = 15
15/5=3
$MRPL
w=20
Chapter 11A.4 Video 11.5
3
4
Input:
Labor hours ℓ*
MRPL = MPL x p
p doubles hence MRPL doubles
Input:
Labor hours
2