CH. 27 : THE DEMAND FOR RESOURCES

I. Resource Pricing A. Here we analyze input costs to the business (ie. Cost of labor, machines) B. Ch determined how output or product should be made. Here, its how many workers should we hire to make the output (or machines). C. Assume P.C. Industry in this chapter II. Rules on how many workers/resources to hire A. Marginal Revenue Product = the increase in TR from adding one more variable input(worker)

1. MRP = Change in TR Change in resource Q B. Marginal Resource Cost = the change in costs from adding another worker 1. C. Rule = Firm will maximize profits up to the point where MRP = MRC (same as saying MR = MC) 1. Remember, in P.C. MRP = D line = Price. If Qs talk about prices changing, it must be M.C., O, or M

D. Derived Demand = D for worker goes in same direction as demand for product III. Man vs. Machine A. Price changes of Substitute and Complementary resources will affect the demand for the resource by…. 1. Substitute Resources = Ex. If price of machine goes down, the demand of machines increase and the demand for humans decrease 2. Complementary Resources = Ex. If price of machine decreases, demand for machine and complementary human running the machine increase.

IV. Elasticity of Resource Demand A.Measures sensitivity/reaction by employers to a change in resource price 1. Ex. If wages increase, will producers hire a lot less workers or a little less?

V. Optimal Combo of resources (how many workers and machines?) A. Least Cost Rule = Costs are minimized when …. 1. Rule = MP of Labor = MP of Capital P of Labor P of Capital B. What combo of Resources will maximize Revenue? When…. 1. Rule = MRP of Labor = MRP of Capital P of Labor P of Capital