Question: Carefully explain why a firm should employ a variable input up to the point that its marginal revenue product equals its marginal cost: MRP =

Carefully explain why a firm should employ a variable input up to the point that its marginal revenue product equals its marginal cost: MRP = MC.

Explain how a firm in the short run will respond to each of the following changes:

a. An increase in the price of the good or service that it sells.

b. An increase in the marginal cost of the variable input.

c. An increase in the productivity of the variable input.

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