He continues to add input as long as the additional return is as much as or more than the additional cost. Marginal Cost is the added cost of producing one more unit of output and Marginal Factor Cost is the cost of using one more unit of input . Higher input prices increase the MFC and cause the amount of inputs that would maximize the profit to be lower .
Lower prices increase the amount used.
It is the MRP curve in Stage II, where the quantity of input that will be demanded to maximize profits is equal to the Marginal Factor Cost. If input prices increase or product prices decrease, the optimum production is reduced. If input prices decrease or product prices increase, the optimum production is increased. Prices between the minimum ATC and the minimum AVC are loss minimization prices. When resources are limited, profits are maximized when the marginal returns in each enterprise are equal.