Wage Determination

Wage Determination - Demand for Resources Marginal Revenue...

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Unformatted text preview: Demand for Resources Marginal Revenue Product MRP = MRC Productivity Profit Maximizing Rule Prices Recall the circular flow diagram. The prices of resources (L,L,K,A) create incomes (WIRP) Prices of (scarce) resources act as a rationing agent. (rationing resources) Resources are a cost to firms Least Cost Policies and Resources Minimum Wage, Interest Rate Ceilings Product and Resource Markets Product Market Goods and Services Resource Market Resource Demand Derived Demand from the product market Resource Supply Land is fixed in quantity Labor, mobile? Unions? Derived Demand Depends on the demand for goods and/or services Software EngineersComputers Demand for resources Marginal Productivity of the Resource Price of the Output Marginal Revenue Product (resource demand curve) Marginal Productivity * Product Price (MRP) Firms MRP Schedule = D Schedule Resource Demand MP Resource Price of the product produced by the resources MP declines with diminishing returns Perfect Competition Constant Price Thus MRP declines with diminishing marginal productivity Thus inverse relationship D and P of the resource MRP = MRC Amount of labor hired depends on marginal resource cost. Marginal Revenue Product must equal Marginal Resource Cost. A firm will hire labor up to the point where MRP = MRC Shows the amount of resources hired at each resource price Perfect Competition Perfect Competition Demand for a resource depends on the MP (marginal productivity) of the resource Price of the product being produced Product Price is Constant MRP declines with diminishing returns MRP is downsloping Imperfect Competition Imperfect Competition Product Price will decline with increased output MP will decline with increases as more resources are employed The two factors which resource demand depends...
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Wage Determination - Demand for Resources Marginal Revenue...

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