CH. 27 : THE DEMAND FOR
RESOURCES
I. Resource Pricing
A. Here we analyze input costs to the business
(ie. Cost of labor, machines)
B. Ch. 23-25 determined how output or product
should be made. Here, its how many workers
should we hire to make the output (or
machines).
C. Assume P.C. Industry in this chapter
II. Rules on how many workers/resources to
hire
A. Marginal Revenue Product = the increase in
TR from adding one more variable
input(worker)
1. MRP = Change in TR
Change in resource Q
B. Marginal Resource Cost = the change
in costs from adding another worker
1.
C. Rule = Firm will maximize profits up to
the point where MRP = MRC (same as
saying MR = MC)
1. Remember, in P.C. MRP = D line =
Price. If Qs talk about prices
changing, it must be M.C., O, or M
D. Derived Demand = D for worker goes
in same direction as demand for
product
III. Man vs. Machine
A. Price changes of Substitute and
Complementary resources will affect the
demand for the resource by….
1. Substitute Resources = Ex. If price of machine
goes down, the demand of machines increase
and the demand for humans decrease
2. Complementary Resources = Ex. If price of
machine decreases, demand for machine and
complementary human running the machine
increase.
IV. Elasticity of Resource Demand
A.Measures sensitivity/reaction by
employers to a change in resource price
1. Ex. If wages increase, will producers
hire a lot less workers or a little
less?
V. Optimal Combo of resources (how many
workers and machines?)
A. Least Cost Rule = Costs are minimized
when ….
1. Rule = MP of Labor = MP of Capital
P of Labor
P of Capital
B. What combo of Resources will
maximize Revenue? When….
1. Rule = MRP of Labor = MRP of Capital
P of Labor
P of Capital