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topic9 - Least-Cost Rule Profit-Maximizing Combination MP...

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Resource Market / The Demand for Resources 9 Topic 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 DETERMINANTS OF RESOURCE DEMAND Changes in Product Demand Changes in Productivity Quantities of Other Resources Technological Progress Quality of the Variable Resource
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DETERMINANTS OF RESOURCE DEMAND Changes in the Prices of Other Resources Substitute Resources Complementary Resources ELASTICITY OF RESOURCE DEMAND Ease of Resource Substitutability Elasticity of Product Demand E rd = Percentage change in resource price Percentage change in resource quantity OPTIMUM COMBINATION OF RESOURCES
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Unformatted text preview: Least-Cost Rule Profit-Maximizing Combination MP of Labor MP of Capital Price of Labor Price of Capital MRP L P L MRP C P C 1 Least-Cost Combination of Resources ECONOMIC RENT Fixed Total Supply Perfectly Inelastic Supply Changes in Demand Determination of Land Rent Land Rent (dollars) Acres of Land S DETERMINATION OF LAND RENT Changes in the demand for land. .. Inelastic Supply. .. Acres of Land R 1 S D 2 D 1 R 2 If demand decreases. .. DETERMINATION OF LAND RENT Changes in the demand for land. .. Rent decreases. INTEREST The price paid for the use of money Stated as a Percentage Money NOT a Resource Interest Rate, (percent) Quantity of Loanable Funds LOANABLE FUNDS THEORY OF INTEREST i = 8% D F S...
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