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Unformatted text preview: The Demand for Resources CHAPTER TWELVE THE DEMAND FOR RESOURCES CHAPTER OVERVIEW This chapter and the next three chapters survey resource pricing. The basic analytical tools involved in this survey are the demand and supply concepts of earlier chapters. While the present chapter focuses on resource demand, the following two chapters couple resource demand with resource supply in explaining the prices of human and property resources. For those instructors wishing to focus on natural resource and energy production, pricing, and sustainability, this material is covered in Chapter 15. The two most basic points made in this chapter are closely related. First the MRP = MRC rule for resource demand is developed. Most students will recognize that the rationale here is essentially the one underlying the MR = MC rule of previous chapters, but that the orientation now is in terms of units of input rather than units of output. Second, the MRP = MRC rule is applied under the assumption that resources are being hired competitively to explain why the MRP curve is the resource demand curve. Resource demand curves are developed for both purely competitive and imperfectly competitive sellers, but the emphasis is on the pure competition model in the hiring of resources. Also covered are changes in resource demand and the elasticity of resource demand. The final section applies the equimarginal principle to the employment of several variable resources. An extended numerical example is used to help students understand and distinguish between the least-cost and profit-maximizing rules. Instructors who omitted the optional chapter on consumer behavior may want to ignore this final section of the chapter. Its omission will not disrupt ensuing chapters. WHATS NEW This was Chapter 25 in the 17 th edition. The Consider This box on superstars has been updated from Shania Twain to Beyonce Knowles. The discussion on the marginal productivity theory of income distribution has been edited to remove some of the dated phraseologies such as landlords and capitalists and to clarify references to resource pricing power. The tables (12.5 and 12.6) on the fastest growing and most-rapidly declining occupations have been updated. Most of the other revisions involve updated data. INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Present four major reasons for studying resource pricing. 2. Explain the concept of derived demand as it applies to resource demand. 3. Determine the marginal-revenue-product schedule for an input when given appropriate data. 4. State the principle employed by a profit-maximizing firm in determining how much of a resource it will employ....
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- Spring '11