Marginal factor cost

Marginal factor cost

Marginal factor cost (MFC) is a rate expressed in currency units per units of input, such as labor. It is similar but not identical to a wage rate, which is currency units per unit time.

For example, the MFC can be the change in total wages divided by the change in the quantity of labor. Other factors of production such as land can be substituted for labor.

A firm that wants to optimize its profits hires labor up to the point at which marginal factor cost equals marginal revenue product (MFC=MRP).


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