Lecture Economics (19/e) - Chapter 12: The demand for resources

In this chapter, students will be able to understand: Explain the significance of resource pricing, convey how the marginal revenue productivity of a resource relates to a firm''s demand for that resource, list the factors that increase or decrease resource demand, discuss the determinants of elasticity of resource demand, determine how a competitive firm selects its optimal combination of resources.

The Demand for Resources

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Resource Pricing

(good and resource)

change in resource (labor)

•Rule for employing resources:

Marginal Revenue

Unit Change in Resource Quantity

Marginal Resource Cost = Change in Total (Resource) Cost

Unit Change in Resource Quantity

Resource Demand

Quantity of Resource Demanded

MRP as Resource Demand

(1) Units of Resource

(2) Total Product (Output)

(3) Marginal Product (MP)

(4) Product Price

(5) Total Revenue, (2) X (4)

(6) Marginal Revenue Product (MRP)

0 1 2 3 4 5 6 7

0 7 13 18 22 25 27 28

7 6 5 4 3 2 1

$2 2 2 2 2 2 2 2

$ 0 14 26 36 44 50 54 56

$14 12 10 8 6 4 2

] ] ] ] ] ] ]

] ] ] ] ] ] ]

1 2 3 4 5 6 7

0 -2

2 4 6 8 10 12 14 16

$18

D=MRP

Purely

Competitive

Firm’s

Demand for

A Resource

0 1 2 3 4 5 6 7

0 7 13 18 22 25 27 28

7 6 5 4 3 2 1

$2.80 2.60 2.40 2.20 2.00 1.87 1.75 1.65

$ 0.00 18.20 31.20 39.60 44.00 46.25 47.25 46.20

$18.20 13.00 8.40 4.40 2.25 1.00 -1.05

] ] ] ] ] ] ]

] ] ] ] ] ] ]

1 2 3 4 5 6 7 0

-2

2 4 6 8 10 12 14 16

$18

Quantity of Resource Demanded

D=MRP

(Pure Competition)

Imperfectly

Competitive

Firm’s

Demand for

A Resource

D=MRP

(Imperfect Competition)

MRP as Resource Demand

(1) Units of Resource

(2) Total Product (Output)

(3) Marginal Product (MP)

(4) Product Price

(5) Total Revenue, (2) X (4)

(6) Marginal Revenue Product (MRP)

Determinants of Resource Demand

resources

complementary resources

Occupational Employment Trends

Erd = Percentage Change in Resource Quantity Percentage Change in Resource Price

output

output

yields the same marginal product

Marginal Product

Of Labor (MPL) Price of Labor (PL)

Marginal Product

Of Capital (MPC) Price of Capital (PC)

=

price

MRPL

PL

MRPC

PC

MRPL

PL = and PC = MRPC

distributed

profit-maximizing combination of

labor and capital