(See related pages)
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| derived demand | The demand for a factor that depends on the products it can be used to produce. (See page(s) p. 271) |
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| elasticity of factor demand | The percentage change in factor quantity divided by the percentage change in factor price; if the result is greater than one, factor demand is elastic; if the result is less than one, factor demand is inelastic; and when the result equals one, factor demand is unit-elastic. (See page(s) p. 280) |
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| least-cost combination of factors | The quantity of each factor a firm must employ to produce a particular output at the lowest total cost. (See page(s) p. 281) |
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| marginal factor cost | (MFC) The amount that each additional unit of a factor adds to the firm's total (factor) cost. (See page(s) p. 273) |
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| marginal product | (MP) The extra output produced with adding a unit of a variable factor to the production process. (See page(s) p. 272) |
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| marginal productivity theory of income distribution | The contention that the distribution of income is fair when each unit of each factor receives a money payment equal to its marginal contribution to the firm's revenue (its marginal revenue product). (See page(s) p. 284) |
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| marginal revenue product | (MRP) The change in total revenue from employing one additional unit of a factor. (See page(s) p. 272) |
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| MRP = MFC rule | To maximize economic profit (or minimize losses) a firm should use the quantity of a factor at which its marginal revenue product is equal to its marginal factor cost. (See page(s) p. 273) |
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| output effect | An increase in the price of one input will increase a firm's production costs and reduce its level of output, thus reducing the demand for other inputs (and vice versa). (See page(s) p. 278) |
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| profit-maximizing combination of factors | The quantity of each factor a firm must employ to maximize its profits or minimize its losses. (See page(s) p. 282) |
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| substitution effect | (1) A change in the price of a consumer good changes the relative expensiveness of that good and hence changes the consumer's willingness to buy it rather than other goods. (2) A firm will purchase more of an input whose relative price has declined and use less of an input whose relative price has increased. (See page(s) p. 278) |