Chapter 12

Chapter 12 - Click to edit Master subtitle style Chapter 12 The Demand for Resources Over view 1 Significance of Resource Pricing 2 Marginal

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Unformatted text preview: Click to edit Master subtitle style 4/4/11 Chapter 12 The Demand for Resources 4/4/11 Over view 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 4/4/11 Resource Pr icing M oney-income deter mination 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) Resour ce allocation Resources flow to their highest valued use 4/4/11 Marginal Productivity Theor y of 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 Der ived Demand – the demand for a resource P P D = MR Q Q* 4/4/11 Resource Demand cont. Resources are subject to marginal returns Wage Significance Highly productive resources Unproductive resources Tr oy Univer sity MP Units of Labor Output AP Resource demand is dependent upon… 1) Productivity of the resource 2) Market price of product being produced 4/4/11 Pr icing 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- $6,0 00 1 50 50 $6,0 00 2 90 40 $6,0 00 3 120 30 $6,0 Find Total Revenue (TR) first Total Reven ue $0 $300, 000 $540, 000 $720, 000 $840, Marginal Revenue Product (MRP) $0 $300,000 $240,000 $180,000 $120,000 $60,000 Next, find Marginal Revenue Product (MRP) 4/4/11 Pr icing Resources Cont....
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This note was uploaded on 04/04/2011 for the course ECO 2252 taught by Professor Edward during the Spring '08 term at Troy.

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Chapter 12 - Click to edit Master subtitle style Chapter 12 The Demand for Resources Over view 1 Significance of Resource Pricing 2 Marginal

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