Chapter 14
Explain why the demand for labor might decrease if the price of capital decreases. Explain why the demand for labor might increase if the price of capital increases. Use substitution and output effect concepts in explanation. Explain how one effect (of either substitution or output) may offset the other effect.
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Least-Cost Combination of Resources
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MRP = MRC Rule
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Marginal Product (MP)
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Explain the profit-maximizing rule for a combination of resources
The price of any resource must be equal to its marginal revenue product, and thus the ratio must always equal 1.
Suppose the demand for strawberries rises sharply, resulting in an increase price of strawberries. As it relates to strawberry pickers, we could expect the
MRP curve to shift to the right
"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the
Marginal productivity theory of income distribution
Resource X has many close substitutes whereas resource Y has no close substitutes. Other things equal, we would expect
The demand for resource X to be more elastic than the demand for resource Y.
Marginal revenue product is the increase in
Total revenue from the use of an additional unit of a resource
Which is an example of a change in product demand that increases labor demand
Tourism increases in popularity, increasing the demand for workers at tourist resorts
The demand for a resource depends primarily on
The demand for the product or service that it helps produce
The more inelastic the demand for a resource, the
less elastic its marginal revenue product curve
If the wage rate increases
A purely competitive and an imperfectly competitive producer will both hire less labor
Derived Demand
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Elasticity of Resource Demand
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Explain how much of a resource a firm will hire using the MRP and MRC concepts
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Explain the change in of MRP under pure competition and imperfect competition and the difference of MP and P between them.
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Explain the difference between MR & MC to MRP and MRC
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Explain the rule of MRP = MRC and what happens when MRP > MRC or when MRP < MRC
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Marginal Productivity Theory of Income Distribution
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Marginal Resource Cost (MRC)
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Marginal Revenue Product (MRP)
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Output Effect
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Profit-Maximizing Combination of Resources
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Substitution Effect
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A firm is both hiring labor and selling output in purely competitive markets and its maximizing profits. It is currently operating in the elastic range of its MRP curve. If the wage rate increases, its total spending on ages at the new equilibrium will
Be smaller
The marginal revenue product of an input in a competitive market decreases as a firm increases the quantity of an input used because of the
Law of diminishing returns
