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A profit-maximizing firm expands its purchase of any input up to the point where diminishing returns have reduced the marginal revenue product so that it equals the input price. Why does it not pay the firm to “quit while it is ahead,” buying so small a quantity of the input that the input’s MRP remains greater than its price?

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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 18, Problem 1DQ
Textbook Problem
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A profit-maximizing firm expands its purchase of any input up to the point where diminishing returns have reduced the marginal revenue product so that it equals the input price. Why does it not pay the firm to “quit while it is ahead,” buying so small a quantity of the input that the input’s MRP remains greater than its price?

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