ECN607 – Lectureaid_5

ECN607 – Lectureaid_5 - ECN607 Managerial...

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ECN607 – Managerial Economics Study Aid: lecture 5 Introduction Understanding how much it costs a firm to produce something is common to all businesses. Marginal productivity, which provides insight into how a firm's output responds to changes in inputs, is addressed in this module. Demand and Supply of Resources There are three general types of resources: land, labor, and capital. The firm must evaluate the utility of these resources in order to determine the need for them. A separate market exists in each resource type. The market demand for a particular is the sum of all the individual demands for that resource. A firm's demand for a given resource is based on the consumer demand for the goods and services the firm produces. According to Boyes and Melvin (2008), shifts in demand for a resource can occur based on changes in: the price of the product/service the resource is used to produce; the productivity of a resource; the number of buyers of the resource; the prices of related resources; and the quantities of other resources. Market supply for a particular resource is determined by the firms that product the resource. The quantity of resources supplied depends, in part, on the wages and profits of the producing firms. According to Boyes and Melvin (2008), shifts in supply for a particular resource can occur based on changes in: tastes, the number of suppliers, and the change in the prices of other products/services that use the resource.
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