2. 14 - 1 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show The Demand for Resources 14 C H A P T E R

3. 14 - 2 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show SIGNIFICANCE OF RESOURCE PRICING Money Income Determination Resource Allocation Cost Minimization Ethical Questions and Policy Issues

4. 14 - 3 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show MARGINAL PRODUCTIVITY THEORY OF RESOURCE DEMAND Resource Demand as a Derived Demand Marginal Revenue Product (MRP) Productivity Marginal Product (MP) Product Price Marginal Revenue Product = Change in Total Revenue Unit change in Resource Quantity

5. 14 - 4 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show MARGINAL PRODUCTIVITY THEORY OF RESOURCE DEMAND Rule for Employing Resources: MRP = MRC Marginal Revenue Cost = Change in Total (Resource) Cost Unit change in Resource Quantity

6. 14 - 5 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Percentage of Labor Force 0 25 50 75 100 Developing Countries Industrially Advanced Countries United States Agriculture Industry Services GLOBAL PERSPECTIVE Labor Demand and Allocation: Selected Nations Source: International Labour Organization

7. 14 - 6 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Units of Resource Total Product (Output) Marginal product (MP) Product Price Total Revenue Marginal Revenue Product (MRP) 0 1 2 3 4 5 6 7 8 Q P 14 12 10 8 6 4 2 Resource price (wage rate) Quantity of resource demanded Pure Competition MRP AS A DEMAND SCHEDULE ] ] ] ] ] ] ] ] ] ] ] ] 0 0$2$ 0 Consider the case of resource demand under Pure Competition

8. 14 - 7 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Units of Resource Total Product (Output) Marginal product (MP) Product Price Total Revenue Marginal Revenue Product (MRP) ] ] ] ] ] ] 0 1 2 3 4 5 6 7 8 Q P 14 12 10 8 6 4 2 Resource price (wage rate) Quantity of resource demanded Pure Competition MRP AS A DEMAND SCHEDULE ] ] ] ] ] ] 0101 0 7 7 $2 2 $ 0 14 $ 14

9. 14 - 8 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Units of Resource Total Product (Output) Marginal product (MP) Product Price Total Revenue Marginal Revenue Product (MRP) ] ] ] ] ] ] 0 1 2 3 4 5 6 7 8 Q P 14 12 10 8 6 4 2 Resource price (wage rate) Quantity of resource demanded Pure Competition MRP AS A DEMAND SCHEDULE ] ] ] ] ] ] 012012 0 7 13 7676 $2 2 $ 0 14 26 $ 14 12

10. 14 - 9 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Units of Resource Total Product (Output) Marginal product (MP) Product Price Total Revenue Marginal Revenue Product (MRP) ] ] ] ] ] ] 0 1 2 3 4 5 6 7 8 Q P 14 12 10 8 6 4 2 Resource price (wage rate) Quantity of resource demanded Pure Competition MRP AS A DEMAND SCHEDULE ] ] ] ] ] ] 01230123 0 7 13 18 765765 $2 2 $ 0 14 26 36 $ 14 12 10

11. 14 - 10 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Units of Resource Total Product (Output) Marginal product (MP) Product Price Total Revenue Marginal Revenue Product (MRP) ] ] ] ] ] ] 0 1 2 3 4 5 6 7 8 Q P 14 12 10 8 6 4 2 Resource price (wage rate) Quantity of resource demanded Pure Competition MRP AS A DEMAND SCHEDULE ] ] ] ] ] ] 0123456701234567 0 7 13 18 22 25 27 28 76543217654321 $2 2 $ 0 14 26 36 44 50 54 56 $ 14 12 10 8 6 4 2 The purely competitive sellers demand for a resource

12. 14 - 11 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Units of Resource Total Product (Output) Marginal product (MP) Product Price Total Revenue Marginal Revenue Product (MRP) ] ] ] ] ] ] 0 1 2 3 4 5 6 7 8 Q P 14 12 10 8 6 4 2 Resource price (wage rate) Quantity of resource demanded Pure Competition MRP AS A DEMAND SCHEDULE ] ] ] ] ] ] 0123456701234567 0 7 13 18 22 25 27 28 76543217654321 $2 2 $ 0 14 26 36 44 50 54 56 $ 14 12 10 8 6 4 2 The purely competitive sellers demand for a resource Now, consider the case of resource demand under Imperfect Competition

13. 14 - 12 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Units of Resource Total Product (Output) Marginal product (MP) Product Price Total Revenue Marginal Revenue Product (MRP) ] ] ] ] ] ] 0 1 2 3 4 5 6 7 8 Q P 14 12 10 8 6 4 2 Resource price (wage rate) Quantity of resource demanded Imperfect Competition MRP AS A DEMAND SCHEDULE ] ] ] ] ] ] 0123456701234567 0 7 13 18 22 25 27 28 76543217654321 $2.80 2.60 2.40 2.20 2.00 1.85 1.75 1.65 $ 0 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 The imperfectly Competitive sellers demand for a resource

14. 14 - 13 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show DETERMINANTS OF RESOURCE DEMAND Changes in Product Demand Changes in Productivity Quantities of Other Resources Technological Progress Quality of the Variable Resource

15. 14 - 14 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show DETERMINANTS OF RESOURCE DEMAND Changes in the Prices of Other Resources Substitute Resources Substitution Effect Output Effect Net Effect Complementary Resources Occupational Employment Trends

16. 14 - 15 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show ELASTICITY OF RESOURCE DEMAND Rate of MP Decline Ease of Resource Substitutability Elasticity of Product Demand Ratio of Resource Cost to Total Cost Ratio E rd = Percentage change in resource price Percentage change in resource quantity

17. 14 - 16 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show OPTIMUM COMBINATION OF RESOURCES Least-Cost Rule Profit-Maximizing Combination MP of Labor MP of Capital Price of Labor Price of Capital MRP L PLPL MRP C PCPC 1 Least-Cost Combination of Resources

18. 14 - 17 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show MARGINAL PRODUCTIVITY THEORY OF INCOME DISTRIBUTION Inequality Market Imperfections Chapter Conclusions

19. 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 ENDBACK Copyright McGraw-Hill/Irwin 2002

20. 14 - 19 Copyright McGraw-Hill/Irwin, 2002 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as a Demand Schedule Determinants of Resource Demand Elasticity of Resource Demand Optimum Combination of Resources Marginal Productivity Theory of Income Distribution Key Terms Previous Slide Next Slide End Show Wage Determination Chapter 28 NEXT