1. Copyright 2008 The McGraw-Hill Companies 13-1 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show 13 The Demand For Resources

2. Copyright 2008 The McGraw-Hill Companies 13-2 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last 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

3. Copyright 2008 The McGraw-Hill Companies 13-3 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show Significance of Resource Pricing Money-Income Determination Cost Minimization Resource Allocation Policy Issues

4. Copyright 2008 The McGraw-Hill Companies 13-4 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last 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)

5. Copyright 2008 The McGraw-Hill Companies 13-5 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show Marginal Productivity Theory of Resource Demand 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)

6. Copyright 2008 The McGraw-Hill Companies 13-6 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show MRP as Resource Demand MRP 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) 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 ] ] ] ] ] ] ] ] ] ] ] ] ] ] 1234567 0 -2 2 4 6 8 10 12 14 16 $18 Resource Wage (Wage Rate) Quantity of Resource Demanded D=MRP Purely Competitive Seller’s Demand for A Resource

7. Copyright 2008 The McGraw-Hill Companies 13-7 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show MRP as Resource Demand MRP 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) 0123456701234567 0 7 13 18 22 25 27 28 76543217654321 $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 ] ] ] ] ] ] ] ] ] ] ] ] ] ] 1234567 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 Seller’s Demand for A Resource D=MRP (Imperfect Competition) W 13.1

8. Copyright 2008 The McGraw-Hill Companies 13-8 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last 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

9. Copyright 2008 The McGraw-Hill Companies 13-9 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last 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

10. Copyright 2008 The McGraw-Hill Companies 13-10 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show Occupational Employment Trends 10 Fastest Growing U.S. Occupations In 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 Employment Thousands of Jobs 20042014 Percentage 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% 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 Employment Thousands of Jobs 20042014 Percentage Increase 50 148 67 17 160 256 39 255 149 54 27 81 39 11 101 163 25 163 101 38 -45% -41% -39% -37% -36% -33% -31% Source: Bureau of Labor Statistics

11. Copyright 2008 The McGraw-Hill Companies 13-11 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show Elasticity of Resource Demand Ease of Resource Substitutability Elasticity of Product Demand Ratio of Resource Cost to Total Cost E rd = Percentage Change in Resource Quantity Percentage Change in Resource Price O 13.1

12. Copyright 2008 The McGraw-Hill Companies 13-12 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show Optimal Combination of Resources The Least-Cost Rule –Least-Cost Combination of Resources Marginal Product Of Labor (MP L ) Price of Labor (P L ) Marginal Product Of Capital (MP C ) Price of Capital (P C ) =

13. Copyright 2008 The McGraw-Hill Companies 13-13 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show Optimal Combination of Resources The Profit-Maximizing Rule MRP (Resource) = P (Resource) Profit Maximizing Combination of Resources MRP L PLPL MRP C PCPC = = 1 MRP L PLPL = MRP C PCPC = and W 13.2

14. Copyright 2008 The McGraw-Hill Companies 13-14 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show Marginal Productivity Theory of Income Distribution Inequality Market Imperfections O 13.2

15. Copyright 2008 The McGraw-Hill Companies 13-15 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last 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

16. Copyright 2008 The McGraw-Hill Companies 13-16 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last 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 resourcesprofit maximizing combination of resources marginal productivity theory of income distributionmarginal productivity theory of income distribution

17. Copyright 2008 The McGraw-Hill Companies 13-17 Significance of Resource Pricing Marginal Productivity Theory of Resource Demand MRP as Resource Demand Market Demand for a Resource Occupational Employment Trends Elasticity of Resource Demand Optimal Combination of Resources Marginal Productivity Theory of Income Distribution Last Word Key Terms End Show Next Chapter Preview… Wage Determination