Micro Chapter 25

1
Micro Chapter 25

• Presentation 2

2
Complementary Resources

• go together and are jointly demanded
• An increase in the quantity of one of them used
  in the production process requires an increase in
  the amount used of the other as well

3
Demand for Labor Will Increase

• 1. the demand for the product produced by that
  labor increases
• 2. the productivity of labor increases
• 3. the price of a substitute increases
• 4. the price of a complementary input decreases

4
Changes in Occupations

• Many of the fastest growing jobs are part of the
  health-care industry
• a. aging population of baby-boomers
• b. increased availability of insurance

5
Elasticity of Resource Demand

• The sensitivity of producers to changes in
  resource prices

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Elasticity of Resource Demand Contd

• When Erd is greater than 1, resource demand is
  elastic
• When Erd is less than 1, resource demand is
  inelastic
• When Erd equals 1, resource demand is unit elastic

7
Least-Cost Combination of Resources

• The last dollar spent on each resource yields the
  same marginal product

8

• Least-Cost Combination of Resources

9
Optimal Combination of Resources

• The Profit-Maximizing Rule
• Profit Maximizing Combination of Resources

10
Practice Problem

• Assume that a purely competitive firm uses two
  resources, labor (L) and capital (C), to produce
  a product. In which situation would the firm be
  maximizing profit?

Answer C
11
Marginal Productivity Theory of Income
Distribution

• The idea that the distribution of income is
  equitable when each unit of resource receives a
  money payment equal to its marginal contribution
  to the firms revenue
• to each according to what he or she creates
• Each worker contributes as much output as he is
  paid