12/15/2025

5.1

Derived Demand

• Demand from a resource is derived from product demand

• Two things derived from demand

  1. productivity

  2. output price

Marginal Physical Product

• Additional output produced by one or more variable inputs

Calculating MPP

• The downward slope of the MPP curve is caused by diminishing returns, or with all other resources held constant

• With each additional input of a resource, the output increases at a decreasing rate

Calculating MRP from a change in output price

• MRP=MPP * MR, where MRP stands for Marginal Revenue Product, MPP is the Marginal Physical Product, and MR is the Marginal Revenue, illustrating the relationship between productivity and revenue generation in a production process.