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Chapter 12 - Chapt er 12 T he Demand for Resour ces Click...

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Click to edit Master subtitle style 4/4/11 Chapter 12 The Demand for Resources
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4/4/11 Overview 1) Significance of Resource Pricing 2) Marginal Productivity Theory and Resource Demand 3) Determinants of Resource Demand 4) Elasticity of Resource Demand 5) Optimal Combination of Resources
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4/4/11 Resource Pricing Money-income determination Labor (resource) is supplied to firms Firms pay labor for their use Cost minimization Wages are one of the biggest costs to a firm Firm’s goal is to minimize costs (productive efficiency) Resource allocation Resources flow to their highest valued use
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4/4/11 Marginal Productivity Theory of Resource Demand Perfect competition assumption “price taker” “no influence” Buy resources from competitive market When you purchase a video game are you buying the programmer’s labor? In a sense…yes Derived Demand – the demand for a resource depends on the demand for the product it P P D = MR Q Q*
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4/4/11 Resource Demand cont. Resources are subject to marginal returns Wage Significance Highly productive resources Unproductive resources Troy University Goods in high demand ex: MP Units of Labor Output AP Resource demand is dependent upon… 1) Productivity of the resource 2) Market price of product being produced
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Pricing Resources 1. Assume management professors are our resource 2. Output is measured in degrees conferred Profess ors Degre es Margin al Produc t Pric e 0 0 - $6,0 00 1 50 50 $6,0 00 2 90 40 $6,0 00 3 120 30 $6,0 00 Find Total Revenue (TR) first Total Reven ue $0 $300, 000 $540, 000 $720, 000 $840, 000 Marginal Revenue Product (MRP) $0 $300,000 $240,000 $180,000 $120,000 $60,000 Next, find Marginal Revenue Product (MRP)
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4/4/11 Pricing Resources Cont.
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