1. Significance of Resource Pricing
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
27
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule CHAPTER
Marginal Productivity Theory of Income Distribution
Key Terms
The Demand for
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Copyright McGraw-Hill/Irwin, 2002

2. SIGNIFICANCE OF
RESOURCE PRICING
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
• Money Income
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Determination
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
• Resource Allocation
• Cost Minimization
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• Ethical Questions
and Policy Issues
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Copyright McGraw-Hill/Irwin, 2002

3. MARGINAL PRODUCTIVITY
THEORY OF RESOURCE DEMAND
Significance of Resource Pricing
Resource Demand as a Derived
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Demand
Determinants of Resource Demand
Elasticity of Resource Demand
Marginal Revenue Product (MRP)
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
•Productivity
•Marginal Product (MP)
•Product Price
Marginal Change in Total Revenue
Previous Next Revenue =
Slide Slide Unit change in Resource Quantity
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Product
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Copyright McGraw-Hill/Irwin, 2002

4. MARGINAL PRODUCTIVITY
THEORY OF RESOURCE DEMAND
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Marginal
Determinants of Resource Demand
Elasticity of Resource Demand Change in Total (Resource) Cost
Revenue =
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Unit change in Resource Quantity
Key Terms Cost
Rule for Employing Resources:
MRP = MRC
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End
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Copyright McGraw-Hill/Irwin, 2002

5. GLOBAL PERSPECTIVE
Significance of Resource Pricing Labor Demand and Allocation:
Selected Nations
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand Percentage of Labor Force
Elasticity of Resource Demand 0 25 50 75 100
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution Agriculture
Developing
Key Terms
Countries Industry
Services
Industrially Agriculture
Advanced Industry
Countries
Services
Agriculture
United
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Slide States
Industry
End Services
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27 - 5 Source: International Labour Organization
Copyright McGraw-Hill/Irwin, 2002

6. MRP AS A DEMAND SCHEDULE
Pure Competition
Significance of Resource Pricing Total Marginal Marginal
Units of Product
Marginal Productivity Theory of Resource Demand product Product Total Revenue
MRP as a Demand Schedule Resource (Output) (MP) Price Revenue Product (MRP)
Determinants of Resource Demand
0 $20$ 0
Elasticity of Resource Demand ] ]
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
] ]
] ]
Consider the case of]
Key Terms
]
]
resource demand under ]
] ]
Pure Competition
P 14
Resource price
12
(wage rate)
10
8
6
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4
2
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27 - 6 Quantity of resource demanded
Copyright McGraw-Hill/Irwin, 2002

7. MRP AS A DEMAND SCHEDULE
Pure Competition
Significance of Resource Pricing Total Marginal Marginal
Units of Product
Marginal Productivity Theory of Resource Demand product Product Total Revenue
MRP as a Demand Schedule Resource (Output) (MP) Price Revenue Product (MRP)
Determinants of Resource Demand
0 0 $2 $ 0
Elasticity of Resource Demand
1 7
] 7
2 14
] $ 14
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
] ]
Key Terms ] ]
] ]
] ]
] ]
P 14
Resource price
12
(wage rate)
10
8
6
Previous Next
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4
2
End
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27 - 7 Quantity of resource demanded
Copyright McGraw-Hill/Irwin, 2002

8. MRP AS A DEMAND SCHEDULE
Pure Competition
Significance of Resource Pricing Total Marginal Marginal
Units of Product
Marginal Productivity Theory of Resource Demand product Product Total Revenue
MRP as a Demand Schedule Resource (Output) (MP) Price Revenue Product (MRP)
Determinants of Resource Demand
0 0 $2 $ 0
Elasticity of Resource Demand
1 7
] 7
2 14
] $ 14
Optimum Combination of Resources
] 6 ] 12
2 13
Marginal Productivity Theory of Income Distribution 2 26
Key Terms ] ]
] ]
] ]
] ]
P 14
Resource price
12
(wage rate)
10
8
6
Previous Next
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4
2
End
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27 - 8 Quantity of resource demanded
Copyright McGraw-Hill/Irwin, 2002

9. MRP AS A DEMAND SCHEDULE
Pure Competition
Significance of Resource Pricing Total Marginal Marginal
Units of Product
Marginal Productivity Theory of Resource Demand product Product Total Revenue
MRP as a Demand Schedule Resource (Output) (MP) Price Revenue Product (MRP)
Determinants of Resource Demand
0 0 $2 $ 0
Elasticity of Resource Demand
1 7
] 7
2 14
] $ 14
Optimum Combination of Resources
] 6 ] 12
2 13 2 26 10
Marginal Productivity Theory of Income Distribution
5
Key Terms 3 18 ] 2 36 ]
] ]
] ]
] ]
P 14
Resource price
12
(wage rate)
10
8
6
Previous Next
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4
2
End
Show 0 1 2 3 4 5 6 7 8 Q
27 - 9 Quantity of resource demanded
Copyright McGraw-Hill/Irwin, 2002

10. MRP AS A DEMAND SCHEDULE
Pure Competition
Significance of Resource Pricing Total Marginal Marginal
Units of Product
Marginal Productivity Theory of Resource Demand product Product Total Revenue
MRP as a Demand Schedule Resource (Output) (MP) Price Revenue Product (MRP)
Determinants of Resource Demand
0 0 $2 $ 0
Elasticity of Resource Demand
1 7
] 7
2 14
] $ 14
Optimum Combination of Resources
] 6 ] 12
2 13 2 26 10
Marginal Productivity Theory of Income Distribution
5
Key Terms 3 18 ] 4
2 36 ] 8
4 22 ] 3
2 44 ] 6
5 25 ] 2
2 50 ] 4
6 27 2 54
7 28
] 1
2 56
] 2
P 14
Resource price
12
(wage rate)
10 The purely competitive
8 seller’s demand for
6 a resource
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4
2
End
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27 - 10 Quantity of resource demanded
Copyright McGraw-Hill/Irwin, 2002

11. MRP AS A DEMAND SCHEDULE
Pure Competition
Significance of Resource Pricing Total Marginal Marginal
Units of Product
Marginal Productivity Theory of Resource Demand product Product Total Revenue
MRP as a Demand Schedule Resource (Output) (MP) Price Revenue Product (MRP)
Determinants of Resource Demand
0 $2 0
$ 0
Elasticity of Resource Demand
1
] 7
2 714
] $ 14
] 12
26 ]
Optimum Combination of Resources 6
2 13
2 10
5
Marginal Productivity Theory of Income Distribution
3 ] 18
2 36 ]
Now, consider the case ] 8
Key Terms
4
4 ] 3
22
2 44 6
5 ] 2
25
2 50 ]
of resource demand under 4
6 27
2 54
] 1 ] 2
Imperfect Competition
7 28
2 56
14 P
Resource price
12
(wage rate)
10 The purely competitive
8 seller’s demand for
6 a resource
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4
2
End
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27 - 11 Quantity of resource demanded
Copyright McGraw-Hill/Irwin, 2002

12. MRP AS A DEMAND SCHEDULE
Imperfect Competition
Significance of Resource Pricing Total Marginal Marginal
Units of Product
Marginal Productivity Theory of Resource Demand product Product Total Revenue
MRP as a Demand Schedule Resource (Output) (MP) Price Revenue Product (MRP)
Determinants of Resource Demand
0 0 $2.80 $ 0
Elasticity of Resource Demand
1 7
] 7
2.60 18.20
] $ 18.20
Optimum Combination of Resources
] 6 ] 13.00
2 13 2.40 31.20 8.40
Marginal Productivity Theory of Income Distribution
5
Key Terms 3 18 ] 4
2.20 39.60 ] 4.40
4 22 ] 3
2.00 44.00 ] 2.25
5 25 ] 2
1.85 46.25 ] 1.00
6 27 1.75 47.25
7 28
] 1
1.65 46.20
] -1.05
P 14
Resource price
12
The imperfectly
(wage rate)
10
8 Competitive seller’s
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6 demand for a resource
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27 - 12 Quantity of resource demanded
Copyright McGraw-Hill/Irwin, 2002

13. DETERMINANTS OF RESOURCE DEMAND
Changes in Product Demand
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Changes in Productivity
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
• Quantities of Other
Marginal Productivity Theory of Income Distribution
Key Terms
Resources
• Technological Progress
Previous Next
• Quality of the Variable
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Resource
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Copyright McGraw-Hill/Irwin, 2002

14. DETERMINANTS OF RESOURCE DEMAND
Changes in the Prices of
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Other Resources
Determinants of Resource Demand
Substitute Resources
Elasticity of Resource Demand
Optimum Combination of Resources
• Substitution Effect
Marginal Productivity Theory of Income Distribution
Key Terms
• Output Effect
• Net Effect
Complementary Resources
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Trends
Copyright McGraw-Hill/Irwin, 2002

15. ELASTICITY OF RESOURCE DEMAND
Significance of Resource Pricing Percentage change in resource quantity
MRP as a Demand Schedule
Erd =
Marginal Productivity Theory of Resource Demand
Percentage change in resource price
Determinants of Resource Demand
Elasticity of Resource Demand
Rate of MP Decline
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
Ease of Resource Substitutability
Elasticity of Product Demand
Ratio of Resource Cost to Total
Next
Cost Ratio
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16. OPTIMUM COMBINATION
Significance of Resource Pricing
OF RESOURCES
Least-Cost Rule
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Least-Cost Combination of Resources
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
MP of Labor
Marginal Productivity Theory of Income Distribution MP of Capital
Key Terms
Price of Labor Price of Capital
Profit-Maximizing Combination
MRPL MRPC
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PL PC 1
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Copyright McGraw-Hill/Irwin, 2002

17. MARGINAL PRODUCTIVITY THEORY
OF INCOME DISTRIBUTION
Significance of Resource Pricing
Inequality
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
Market Imperfections
Chapter
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Slide Conclusions
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18. derived demand
marginal product (MP)
marginal revenue product (MRP)
marginal resource cost (MRC)
MRP = MRC rule
substitution effect
output effect
elasticity of resource demand
least-cost combination of resources
profit-maximizing combination of resources
marginal productivity theory of income distribution
Copyright McGraw-Hill/Irwin 2002 BACK END

19. Significance of Resource Pricing
NEXT
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
Wage
Determination
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Chapter 28
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