27 - 1Copyright 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
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The Demand for Resources
27C H A P T E R
27 - 2Copyright 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
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NextSlide
EndShow
SIGNIFICANCE OFRESOURCE PRICING
•Money Income Determination
•Resource Allocation
•Cost Minimization
•Ethical Questions and Policy Issues
27 - 3Copyright 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
PreviousSlide
NextSlide
EndShow
MARGINAL PRODUCTIVITYTHEORY OF RESOURCE DEMAND
Resource Demand as a Derived Demand
Marginal Revenue Product (MRP)•Productivity
•Marginal Product (MP)•Product Price
MarginalRevenueProduct
=Change in Total Revenue
Unit change in Resource Quantity
27 - 4Copyright 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
PreviousSlide
NextSlide
EndShow
MARGINAL PRODUCTIVITYTHEORY OF RESOURCE DEMAND
Rule for Employing Resources:
MRP = MRC
MarginalRevenue
Cost=
Change in Total (Resource) Cost
Unit change in Resource Quantity
27 - 5Copyright 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
PreviousSlide
NextSlide
EndShow
Percentage of Labor Force0 25 50 75 100
DevelopingCountries
IndustriallyAdvancedCountries
UnitedStates
Agriculture
Agriculture
Agriculture
Industry
Industry
IndustryServices
Services
Services
GLOBAL PERSPECTIVELabor Demand and Allocation: Selected Nations
Source: International Labour Organization
27 - 6Copyright 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
PreviousSlide
NextSlide
EndShow
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
]]]]]]
0 0 $2 $ 0
Consider the case ofresource demand under
Pure Competition
27 - 7Copyright 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
PreviousSlide
NextSlide
EndShow
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01
0 7
7$2 2
$ 0 14
$ 14
27 - 8Copyright 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
PreviousSlide
NextSlide
EndShow
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
012
0 713
76
$2 2 2
$ 0 14 26
$ 14 12
27 - 9Copyright 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
PreviousSlide
NextSlide
EndShow
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
0123
0 71318
765
$2 2 2 2
$ 0 14 26 36
$ 14 12 10
27 - 10Copyright 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
PreviousSlide
NextSlide
EndShow
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
0 7131822252728
7654321
$2 2 2 2 2 2 2 2
$ 0 14 26 36 44 50 54 56
$ 14 12 10 8 6 4 2
The purely competitiveseller’s demand fora resource
27 - 11Copyright 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
PreviousSlide
NextSlide
EndShow
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
0 7131822252728
7654321
$2 2 2 2 2 2 2 2
$ 0 14 26 36 44 50 54 56
$ 14 12 10 8 6 4 2
The purely competitiveseller’s demand fora resource
Now, consider the caseof resource demand under
Imperfect Competition
27 - 12Copyright 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
PreviousSlide
NextSlide
EndShow
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Imperfect CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
0 7131822252728
7654321
$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 imperfectlyCompetitive seller’sdemand for a resource
27 - 13Copyright 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
PreviousSlide
NextSlide
EndShow
DETERMINANTS OF RESOURCE DEMAND
Changes in Product Demand
Changes in Productivity• Quantities of Other
Resources• Technological Progress• Quality of the Variable
Resource
27 - 14Copyright 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
PreviousSlide
NextSlide
EndShow
DETERMINANTS OF RESOURCE DEMAND
Changes in the Prices of Other Resources
Substitute Resources• Substitution Effect• Output Effect• Net Effect
Complementary ResourcesOccupational Employment
Trends
27 - 15Copyright 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
PreviousSlide
NextSlide
EndShow
ELASTICITY OF RESOURCE DEMAND
Rate of MP Decline
Ease of Resource Substitutability
Elasticity of Product Demand
Ratio of Resource Cost to Total
Cost Ratio
Erd = Percentage change in resource price
Percentage change in resource quantity
27 - 16Copyright 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
PreviousSlide
NextSlide
EndShow
OPTIMUM COMBINATIONOF RESOURCES
Least-Cost Rule
Profit-Maximizing Combination
MP of Labor MP of Capital
Price of Labor Price of Capital
MRPL
PL
MRPC
PC1
Least-Cost Combination of Resources
27 - 17Copyright 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
PreviousSlide
NextSlide
EndShow
MARGINAL PRODUCTIVITY THEORYOF INCOME DISTRIBUTION
Inequality
Market Imperfections
ChapterConclusions
derived demandmarginal product (MP)marginal revenue product (MRP)marginal resource cost (MRC)MRP = MRC rulesubstitution effectoutput effectelasticity of resource demandleast-cost combination of resourcesprofit-maximizing combination of resourcesmarginal productivity theory of income distribution
ENDBACKCopyright McGraw-Hill/Irwin 2002
27 - 19Copyright 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
PreviousSlide
NextSlide
EndShow
Wage Determination
Chapter 28
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