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Copyright 2008 The McGraw-Hill Companies25-1
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
25The DemandFor Resources
Copyright 2008 The McGraw-Hill Companies25-2
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Chapter Objectives• The Significance of Resource
Pricing• How the Marginal Revenue
Productivity of a Resource Relates to a Firm’s Demand for that Resource
• The Factors that Increase or Decrease Resource Demand
• The Determinants of Elasticity of Resource Demand
• How a Competitive Firm Selects its Optimal Combination of Resources
Copyright 2008 The McGraw-Hill Companies25-3
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Significance of Resource Pricing
• Money-Income Determination
• Cost Minimization
• Resource Allocation
• Policy Issues
Copyright 2008 The McGraw-Hill Companies25-4
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Marginal Productivity Theory of Resource Demand
• Resource Demand as a Derived Demand
• Marginal Revenue Product–Productivity
•Marginal Product (MP)–Product Price
•Marginal Revenue Product (MRP)
Copyright 2008 The McGraw-Hill Companies25-5
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Marginal Productivity Theory of Resource Demand
Rule for Employing Resources: MRP = MRC
MarginalRevenueProduct
=Change in Total Revenue
Unit Change in Resource Quantity
MarginalResource
Cost=
Change in Total (Resource) Cost
Unit Change in Resource Quantity
Marginal Revenue Product (MRP)
Marginal Resource Cost (MRC)
Copyright 2008 The McGraw-Hill Companies25-6
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
MRP as Resource DemandMRP as Resource Demand Schedule
(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)
01234567
07
131822252728
7654321
$22222222
$ 014263644505456
$141210
8642
]]]]]]]
]]]]]]]
1 2 3 4 5 6 70
-2
2
4
6
8
10
12
14
16
$18
Res
ou
rce
Wag
e(W
age
Rat
e)
Quantity of Resource Demanded
D=MRP
PurelyCompetitiveSeller’sDemand forA Resource
Copyright 2008 The McGraw-Hill Companies25-7
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
MRP as Resource DemandMRP as Resource Demand Schedule
(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)
01234567
07
131822252728
7654321
$2.802.602.402.202.001.871.751.65
$ 0.0018.2031.2039.6044.0046.2547.2546.20
$18.2013.008.404.402.251.00
-1.05
]]]]]]]
]]]]]]]
1 2 3 4 5 6 70
-2
2
4
6
8
10
12
14
16
$18
Res
ou
rce
Wag
e(W
age
Rat
e)
Quantity of Resource Demanded
D=MRP(Pure Competition)
ImperfectlyCompetitiveSeller’sDemand forA Resource
D=MRP(ImperfectCompetition)
W 25.1
Copyright 2008 The McGraw-Hill Companies25-8
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Market Demand for a Resource
• Determinants of Resource Demand–Changes in Product
Demand
–Changes in Productivity• Quantities of Other
Resources
• Technological Advance
• Quality of Variable Resources
Copyright 2008 The McGraw-Hill Companies25-9
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Market Demand for a Resource
• Changes in the Prices of Other Resources–Substitute Resources
• Substitution Effect
• Output Effect
• Net Effect
–Complementary Resources
Copyright 2008 The McGraw-Hill Companies25-10
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Occupational Employment Trends
10 Fastest Growing U.S. OccupationsIn Percentage Terms, 2004 - 2014
Home Health Aides
Data Communications
Analysts
Medical Assistants
Physician Assistants
Software Engineers,
Applications
Physical Therapist
Assistants
Dental Hygienists
Software Engineers,
Systems
Dental Assistants
Personal Home Care
Aides
Occupation
EmploymentThousands
of Jobs
2004 2014Percentage
Increase
624
231
387
62
460
59
158
340
267
701
974
357
589
93
682
85
226
486
382
988
56%
55%
52%
50%
48%
44%
43%
43%
43%
41%
10 Most Rapidly Declining U.S. Occupations
In Percentage Terms, 2004 - 2014
Meter Readers, Utilities
Textile Machine
Operators
Credit Authorizers,
Checkers, & Clerks
Railroad Brake, Signal,
& Switch Operators
Mailing Clerks
Sewing Machine
Operators
Telephone Operators
File Clerks
Computer Operators
Photographic Pro-
cessing Machine
Operators
Occupation
EmploymentThousands
of Jobs
2004 2014Percentage
Increase
50
148
67
17
160
256
39
255
149
54
27
81
39
11
101
163
25
163
101
38
-45%
-45%
-41%
-39%
-37%
-37%
-36%
-36%
-33%
-31%
Source: Bureau of Labor Statistics
Copyright 2008 The McGraw-Hill Companies25-11
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Elasticity of Resource Demand
• Ease of Resource Substitutability
• Elasticity of Product Demand
• Ratio of Resource Cost to Total Cost
Erd =Percentage Change in Resource Quantity
Percentage Change in Resource Price
O 25.1
Copyright 2008 The McGraw-Hill Companies25-12
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Optimal Combination of Resources
• The Least-Cost Rule
–Least-Cost Combination of Resources
Marginal ProductOf Labor (MPL)
Price of Labor (PL)
Marginal ProductOf Capital (MPC)
Price of Capital (PC)=
Copyright 2008 The McGraw-Hill Companies25-13
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Optimal Combination of Resources
• The Profit-Maximizing Rule
MRP (Resource) = P (Resource)
• Profit Maximizing Combination of Resources
MRPL
PL
MRPC
PC
= = 1
MRPLPL = MRPCPC =and
W 25.2
Copyright 2008 The McGraw-Hill Companies25-14
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Marginal Productivity Theory of Income Distribution
• Inequality
• Market ImperfectionsO 25.2
Copyright 2008 The McGraw-Hill Companies25-15
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Input Substitution:
• Banks Using More ATMs at the Expense of Human Teller Jobs
• Consistency With Least-Cost Combination of Resources
• ATMs Debut About 35 Years Ago• Today Nearly 400,000 Perform About
11 Billion U.S. Transactions• 80,000 Human Tellers Eliminated
Between 1990 and 2000• Bank Customers Gain Convenience
of More Locations While Labor is “Freed-Up” for Other Possibly Better Positions Since Teller Turnover is about 50%
Last
Word The Case of ATMs
Copyright 2008 The McGraw-Hill Companies25-16
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
Key Terms• derived demand
• marginal product (MP)
• marginal revenue product (MRP)
• marginal resource cost (MRC)
• substitution effect
• output effect
• elasticity of resource demand
• least-cost combination of resources
• profit maximizing combination of resources
• marginal productivity theory of income distribution
Copyright 2008 The McGraw-Hill Companies25-17
Significance of Resource PricingMarginal Productivity Theory of Resource DemandMRP as Resource DemandMarket Demand for a ResourceOccupational Employment TrendsElasticity of Resource DemandOptimal Combination of ResourcesMarginal Productivity Theory of Income DistributionLast Word
Key Terms
End Show
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WageDetermination
