THE DEMAND FOR RESOURCESPertemuan 20

Matakuliah : J0114-Teori EkonomiTahun : 2009

Bina Nusantara University 3

Significance of Resource Pricing

• Money-Income Determination• Cost Minimization• Resource Allocation• Policy Issues

Bina Nusantara University 4

Marginal Productivity Theory of Resource

Demand

• Resource Demand as a Derived Demand

• Marginal Revenue Product– Productivity

•Marginal Product (MP)– Product Price

•Marginal Revenue Product (MRP)

Bina Nusantara University 5

Marginal Productivity Theory of Resource

DemandRule for Employing Resources:

MRP = MRC

MarginalRevenueProduct

=Change in Total Revenue

Unit Change in Resource Quantity

MarginalResource

Cost=

Change in Total (Resource) Cost

Unit Change in Resource Quantity

Marginal Revenue Product (MRP)

Marginal Resource Cost (MRC)

Bina Nusantara University 6

MRP as Resource Demand Schedule(1)

Units ofResource

(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

Res

ou

rce

Wag

e(W

age

Rat

e)

Quantity of Resource Demanded

D=MRP

PurelyCompetitiveSeller’sDemand forA Resource

Bina Nusantara University 7

MRP as Resource Demand Schedule

(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

$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

Res

ou

rce

Wag

e(W

age

Rat

e)

Quantity of Resource Demanded

D=MRP(Pure Competition)

ImperfectlyCompetitiveSeller’sDemand forA Resource

D=MRP(ImperfectCompetition)

Bina Nusantara University 8

Market Demand for a Resource

• Determinants of Resource Demand– Changes in Product Demand– Changes in Productivity

• Quantities of Other Resources• Technological Advance• Quality of Variable Resources

Bina Nusantara University 9

Market Demand for a Resource

• Changes in the Prices of Other Resources– Substitute Resources

• Substitution Effect• Output Effect• Net Effect

– Complementary Resources

Bina Nusantara University 10

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

Bina Nusantara University 11

Optimal Combination of Resources

• The Least-Cost Rule– Least-Cost Combination of Resources

Marginal ProductOf Labor (MPL)

Price of Labor (PL)

Marginal ProductOf Capital (MPC)

Price of Capital (PC)=

Bina Nusantara University 12

Optimal Combination of Resources

• The Profit-Maximizing Rule

MRP (Resource) = P (Resource)

• Profit Maximizing Combination of Resources

MRPL

PL

MRPC

PC

= = 1

MRPLPL = MRPCPC =and