2. THE DEMAND FOR RESOURCES Pertemuan 20 Matakuliah: J0114-Teori Ekonomi Tahun: 2009

3. Bina Nusantara University 3 Significance of Resource Pricing Money-Income Determination Cost Minimization Resource Allocation Policy Issues

4. 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)

5. Bina Nusantara University 5 Marginal Productivity Theory of Resource Demand Rule for Employing Resources: MRP = MRC Marginal Revenue Product = Change in Total Revenue Unit Change in Resource Quantity Marginal Resource Cost = Change in Total (Resource) Cost Unit Change in Resource Quantity Marginal Revenue Product (MRP) Marginal Resource Cost (MRC)

6. Bina Nusantara University 6 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) 0123456701234567 0 7 13 18 22 25 27 28 76543217654321 $2 2 $ 0 14 26 36 44 50 54 56 $14 12 10 8 6 4 2 ] ] ] ] ] ] ] ] ] ] ] ] ] ] 1234567 0 -2 2 4 6 8 10 12 14 16 $18 Resource Wage (Wage Rate) Quantity of Resource Demanded D=MRP Purely Competitive Seller’s Demand for A Resource

7. 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) 0123456701234567 0 7 13 18 22 25 27 28 76543217654321 $2.80 2.60 2.40 2.20 2.00 1.87 1.75 1.65 $ 0.00 18.20 31.20 39.60 44.00 46.25 47.25 46.20 $18.20 13.00 8.40 4.40 2.25 1.00 -1.05 ] ] ] ] ] ] ] ] ] ] ] ] ] ] 1234567 0 -2 2 4 6 8 10 12 14 16 $18 Resource Wage (Wage Rate) Quantity of Resource Demanded D=MRP (Pure Competition) Imperfectly Competitive Seller’s Demand for A Resource D=MRP (Imperfect Competition)

8. 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

9. 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

10. Bina Nusantara University 10 Elasticity of Resource Demand Ease of Resource Substitutability Elasticity of Product Demand Ratio of Resource Cost to Total Cost E rd = Percentage Change in Resource Quantity Percentage Change in Resource Price

11. Bina Nusantara University 11 Optimal Combination of Resources The Least-Cost Rule –Least-Cost Combination of Resources Marginal Product Of Labor (MP L ) Price of Labor (P L ) Marginal Product Of Capital (MP C ) Price of Capital (P C ) =

12. Bina Nusantara University 12 Optimal Combination of Resources The Profit-Maximizing Rule MRP (Resource) = P (Resource) Profit Maximizing Combination of Resources MRP L PLPL MRP C PCPC = = 1 MRP L PLPL = MRP C PCPC = and