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 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Resource Pricing Firms demand resources Focus on labor Resource prices are important Money-income determination Cost minimization Resource allocation Policy issues LO1 12- Resource Demand All markets are competitive (good and resource) Derived demand depends on: Productivity of resource (MP) Price of the good it helps produce (P) Marginal revenue product (MRP) Change in TR resulting from unit change in resource (labor) LO1 12- Rule for employing resources: MRP = MRC Marginal Revenue Product = Change in Total Revenue Unit Change in Resource Quantity Marginal Resource Cost = Change in Total (Resource) Cost Unit Change in Resource Quantity Marginal Revenue Product (MRP) Marginal Resource Cost (MRC) LO1 Resource Demand 12- Resource Wage (Wage Rate) 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 LO1 12- 0 1 2 3 4 5 6 7 0 7 13 18 22 25 27 28 7 6 5 4 3 2 1 $ $ $ ] ] ] ] ] ] ] ] ] ] ] ] ] ] 1 2 3 4 5 6 7 0 -2 2 4 6 8 10 12 14 16 $18 Resource Wage (Wage Rate) 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) LO1 12- Determinants of Resource Demand Changes in . | The Demand for Resources McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Resource Pricing Firms demand resources Focus on labor Resource prices are important Money-income determination Cost minimization Resource allocation Policy issues LO1 12- Resource Demand All markets are competitive (good and resource) Derived demand depends on: Productivity of resource (MP) Price of the good it helps produce (P) Marginal revenue product (MRP) Change in TR resulting from unit change in resource (labor) LO1 12- Rule for employing resources: MRP = MRC Marginal Revenue Product = Change in Total Revenue Unit Change in Resource Quantity Marginal Resource Cost = Change in Total (Resource) Cost Unit Change in Resource Quantity Marginal Revenue Product (MRP) Marginal Resource Cost (MRC) LO1 Resource Demand 12- Resource Wage (Wage Rate) Quantity of Resource Demanded MRP as Resource Demand (1) Units of Resource (2) Total Product (Output) (3) .
