Upload
kadycamp12
View
209
Download
1
Tags:
Embed Size (px)
Citation preview
Chapter 14The Demand for Resources
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
14-2
Signif icance of Resource Pricing
• Determines money income for the household• Cost minimization• Resource allocation• Policy issues
LO1
14-3
Marginal Productivity Theory of Resource Demand
• Assume perfectly competition• Product markets• Resource markets
• Derived demand for resources depends on• Marginal product of the resource (MP)• Price of the product it produces (P)
LO2
14-4
Marginal Productivity Theory of Resource Demand
• Marginal revenue product (MRP)• Change in total revenue resulting from unit
change in resource input (labor)
Marginalrevenueproduct
=change in total revenue
change in resource quantity
LO2
14-5
Marginal Productivity Theory of Resource Demand
• Marginal resource cost (MRC)• Change in total resource cost resulting from
unit change in resource input (labor)
Marginalresource
cost=
change in total cost
change in resource quantity
LO2
14-6
Marginal Productivity Theory of Resource Demand
• MRP = MRC rule• To maximize profit, hire additional resources
as long as the additional product produced adds more to revenues than to costs
• MRP schedule equals the firm’s demand for labor
• MRC exactly equal to wage rate
LO2
14-7
MRP as Resource Demand
Reso
urce
wag
e(w
age
rate
)
Quantity of resource demanded
(1)Units of
Resource
(2)Total Product
(Output)
(3)Marginal
Product (MP)
(4)Product
Price
(5)Total Revenue,
(2) X (4)
(6)Marginal Revenue
Product (MRP)
01234567
07
131822252728
7654321
$22222222
$ 014263644505456
$141210
8642
]]]]]]]
]]]]]]]
1 2 3 4 5 6 7
0
-2
2
4
6
8
10
12
14
16
$18
D=MRP
Purelycompetitivefirm’sdemand fora resource
LO2
14-8
Imperfectlycompetitivefirm’sdemand fora resource
MRP as Resource Demand
01234567
07
131822252728
7654321
$2.802.602.402.202.001.871.751.65
$ 0.0018.2031.2039.6044.0046.2547.2546.20
$18.2013.00
8.404.402.251.00
-1.05
]]]]]]]
]]]]]]]
1 2 3 4 5 6 70
-2
2
4
6
8
10
12
14
16
$18
Reso
urce
wag
e(w
age
rate
)
Quantity of resource demanded
D=MRP(Pure competition)
D=MRP(Imperfectcompetition)
(1)Units of
Resource
(2)Total Product
(Output)
(3)Marginal
Product (MP)
(4)Product
Price
(5)Total Revenue,
(2) X (4)
(6)Marginal Revenue
Product (MRP)
LO2
14-9
Determinants of Resource Demand
• Changes in product demand• Changes in productivity• Quantities of other resources• Technological advance• Quality of the variable resource
LO3
14-10
Determinants of Resource Demand
• Changes in price of substitute resources• Substitution effect• Output effect• Net effect
• Changes in the price of complementary resources
LO3
14-11
Substitute and Complement Resources
The Effect of an Increase in the Price of Capital on the Demand for Labor
(2)Increase in the Price of Capital
(1)Relationship of Inputs
(a)Substitution Effect
(b)Output Effect
(c)Combined Effect
Substitutes in production
Labor substituted for capital
Production costs up, output down, and less of both capital and labor used
DL increases if the substitution effect exceeds the output effect; DL decreases if the output effect exceeds the substitution effect
Complements in production
No substitution of labor for capital
Production costs up, output down, and less of both capital and labor used
DL decreases (because only the output effect applies)
LO3
14-12
Determinants of Resource Demand
Determinant Examples
Change in product demand
Gambling increases in popularity, increasing the demand for workers at casinos.Consumers decrease their demand for leather coats, decreasing the demand for tanners.The Federal government increases spending on homeland security, increasing the demand for security personnel.
Change in productivity An increase in the skill levels of physicians increases the demand for their services.Computer-assisted graphic design increases the productivity of , and the demand for, graphic artists.
Change in the price of another resource
An increase in the price of electricity increases the cost of producing aluminum and reduces the demand for aluminum workers.The price of security equipment used by businesses to protect against illegal entry falls, decreasing the demand for night guards.The price of cell phone equipment decreases, reducing the cost of cell phone service; this in turn increases the demand for cell phone assemblers.Health-insurance premiums rise, and firms substitute part-time workers who are not covered by insurance for full-time workers who are.
LO3
14-13
Occupational Employment Trends
• Rising employment in health services• Personal care aides• Home health aides• Biomedical engineers
• Declining employment• Shoe machine operators• Postal service mail sorters• Postal service clerks
LO3
14-14
Employment TrendsThe 10 Fastest Growing U.S. Occupations in Percentage Terms 2010-2020
Employment,Thousands of Jobs
Occupation 2010 2020Percentage
Increase
Personal care aides 861 1,468 70.5
Home health aides 1,018 1,724 69.4
Biomedical engineers 16 25 61.7
Masonry helpers 29 47 60.1
Carpentry helpers 47 72 55.7
Veterinary technologists and technicians 80 122 52.0
Iron and rebar workers 19 28 48.6
Physical therapist assistants 67 98 45.7
Piping and plumbing helpers 58 84 45.4
Meeting, convention, and event planners 72 103 43.7LO3
14-15
Employment TrendsThe 10 Most Rapidly Declining U.S. Occupations in Percentage Terms 2010-2020
Employment,Thousands of Jobs
Occupation 2010 2020Percentage
Increase
Shoe machine operators 3 2 53.4
Postal service mail sorters 142 73 48.5
Postal service clerks 66 34 48.2
Fabric/apparel pattern makers 6 4 35.6
Postmasters/mail superintendents 25 18 27.8
Sewing machine operators 163 121 25.8
Switchboard operators 143 110 23.3
Textile cutting machine operators 15 12 21.8
Textile knitting/weaving machine operators 23 18 18.2
Semiconductor processors 21 17 17.9LO3
14-16
Elasticity of Resource Demand
• Elasticity of resource demand
• Ease of resource substitutability• Elasticity of product demand• Ratio of resource cost to total cost
Erd =percentage change in resource quantity
percentage change in resource price
LO4
14-17
Optimal Combination of Resources
• What combination of resources will minimize costs at a specific output level?
• Least–cost combination of resources• Least cost rule• What combination of resources will maximize
profit?• Profit-maximizing combination of resources• Profit maximizing rule
LO5
14-18
Least Cost Rule
• Minimize cost of producing a given output• Last dollar spent on each resource yields the
same marginal product
Marginal productof labor (MPL)
Price of labor (PL)
Marginal productof capital (MPC)
Price of capital (PC)=
LO5
14-19
Profit Maximizing Rule
• Each resource is employed to the point where its MRP is equal to its price
MRPL
PL
MRPC
PC
= = 1
MRPLPL = MRPCPC =and
LO5
14-20
Numerical Example
• Data for finding the least-cost and profit-maximizing combination of labor and capital
LO5
(1)Quantity
(2)Total
Product(Output)
(3)MarginalProduct
(4)Total
Revenue
(5)MarginalRevenueProduct
01234567
012222833374042
1210
65432
$ 024445666748084
$24201210
864
]]]]]]]
]]]]]]]
(1 )′Quantity
(2 )′Total
Product(Output)
(3 )′MarginalProduct
(4 )′Total
Revenue
(5 )′MarginalRevenueProduct
01234567
013222832353738
]]]]]]]
13964321
$ 026445664707476
]]]]]]]
$261812
8642
Labor (Price = $8) Capital (Price = $12)
14-21
Income Distribution
• Marginal productivity theory of income distribution
• Paid according to value of service• Workers• Resource owners
• Inequality• Productive resources unequally distributed
• Market imperfections
LO6
14-22
Input Substitution: The Case of ATMS
• Banks use ATMS instead of human tellers• Least cost combination of resources• ATMS debuted about 45 years ago• 80 billion US transactions per year• Former tellers find new jobs• Customer convenience