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11 Cards in this Set
- Front
- Back
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derived demand
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demand for x resource as based on demand for products in which x is a component
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Marginal Product (MP)
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Additional output based on adding one more unit of a resource to production
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Marginal Revenue Product (MRP)
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Change in total revenue based on additional unit of resource (change in total revenue/unit change in resource quantity)
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Marginal Resource Cost (MRC)
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The change in total cost of production based on additional unit of resource (change in total resource cost/unit change in resource quantity)
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MRP=MRC Rule
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Spot where optimal resource will be used
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Substitution Effect
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The change in demand for x resource based on changes in price of other resources that can substitute or replace resource x (machinery/human labor)
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Output Effect
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The change in demand for x resource based on relative change in price of other resources (price paper machinery up, demand wood pulp down)
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Elasticity of Resource Demand
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Sensitivity of resource quantity based on changes in resources prices (% change in resource quantity demanded/% change in resource price)
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Least-cost Combination of Resources
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Cost of output is minimized when ratios of marginal product to price of last units of resources used are the same for each resource. (MP of labor/Price labor)=(MP of capital/price capital)
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Profit-Maximizing Combination of Resources
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Each resource is employed to pt at which marginal revenue product=resource price (Price Labor=MRP Labor) and (Price Capital=MRP Capital)
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Marginal Productivity Theory of Income Distribution
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Income is spread out based on contribution to society's output (More $ to more skilled who can produce more)
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