Professional Documents
Culture Documents
Chapter 12
The Demand
For Resources
Chapter Objectives
Resource pricing
Marginal revenue productivity
and firm resource demand
Factors that affect resource
demand
Elasticity of resource demand
Optimal combination of
resources for the competitive
firm
12-2
Resource Pricing
Firms demand resources
Focus on labor
Resource Demand
All markets are competitive
(good and resource)
Derived demand depends on:
Productivity of resource (MP)
Price of good it helps produce (P)
Resource Demand
Rule for employing resources:
MRP = MRC
Marginal Revenue Product (MRP)
Marginal
Revenue
Product
0
1
2
3
4
5
6
7
0]
7]
13 ]
18 ]
22 ]
25 ]
27
]
28
$2
2
2
2
2
2
2
2
7
6
5
4
3
2
1
$0
14
26
36
44
50
54
56
]
]
]
]
]
]
]
$14
12
10
8
6
4
2
$18
Purely
Competitive
Firms
Demand for
A Resource
Resource Wage
(Wage Rate)
16
14
12
10
8
6
4
D=MRP
2
0
-2
12-6
0
1
2
3
4
5
6
7
0]
7]
13 ]
18 ]
22 ]
25 ]
27
]
28
$2.80
2.60
2.40
2.20
2.00
1.87
1.75
1.65
7
6
5
4
3
2
1
$ 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
$18
Imperfectly
Competitive
Firms
Demand for
A Resource
Resource Wage
(Wage Rate)
16
14
D=MRP
(Pure Competition)
12
10
8
6
4 D=MRP
(Imperfect
2 Competition)
0
-2
12-7
Resource Demand
Amount purchased at different
resource prices, all else the same
For the firm, equal to MRP
Market demand equals sum of firm
demand
Determinants of
Resource Demand
Changes in product demand
Changes in productivity
Quantities of other resources
Technological advance
Quality of variable resource
12-9
Determinants of
Resource Demand
Changes in the price of
substitute resources
Substitution effect
Output effect
Net effect
Employment Trends
Rising employment
Services
Health care
Computers
Declining employment
Labor saving technological change
Textiles
12-11
Marginal Product
Of Capital (MPC)
Price of Capital (PC)
12-14
PC = MRPC
MRPC
PC
=1
12-15
Income Distribution
Paid according to value of service
Workers
Resource owners
Inequality
Productive resources unequally
distributed
Market Imperfections
12-16
Case of ATMs
Input substitution
Banks use ATMs instead of people
Least-cost combination of resources
ATMs debut about 35 years ago
11 billion U.S. transactions per year
80,000 tellers eliminated1990-2000
Former tellers find new jobs
Customer convenience
12-17
Key Terms
derived demand
marginal product (MP)
marginal revenue product (MRP)
marginal resource cost (MRC)
MRP=MRC rule
substitution effect
output effect
elasticity of resource demand
least-cost combination of resources
profit-maximizing combination of resources
marginal productivity theory of income
distribution
12-18
Wage
Determination
12-19