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Money-income determination
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The expenditures that firms make in acquiring economic resources, such as wage, rent, interest, and profit incomes that flow to the households that supply those resources
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Cost minimization
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An industrial location strategy that seeks to minimize what the firm pays to produce and distribute its products or services
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Resource allocation
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The allocation of an economy's scarce resources of land, labor, and capital among alternative uses
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Policy issues
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Examples of policy issues surrounding the resource market: Should government encourage or restrict labor unions? Is the provision of subsidies to farmers efficient? Should the government increase the legal minimum wage?
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derived demand
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The demand for a resource is derived from the demand for the products that the resource helps to produce
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marginal product (MP)
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Additional output resulting from using each additional unit of labor
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marginal revenue product (MRP)
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The change in total revenue resulting from the use of each additional unit of a resource
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marginal revenue product (MRP)
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MRP = change in total revenue / unit change in resource quantity
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marginal resource cost (MRC)
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The amount that each additional unit of a resource adds to the firm's total (resource) cost
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marginal resource cost (MRC)
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MRC = change in total (resource) cost / unit change in resource quantity
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MRP = MRC rule
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It will be profitable for a firm to hire edditional units of a resource up to the point at which the resource's marginal resource product is equal to its marginal resource cost
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Factors that may alter the productivity of any resource over the long run
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Quantities of other resources
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Factors that may alter the productivity of any resource over the long run
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Technological advance
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Factors that may alter the productivity of any resource over the long run
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Quality of the variable resource
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Substitution effect
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When a firm substitutes machinery for labor due to the decline in the price of machinery, allowing the firm to produce it output at a lower cost
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Output effect
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The situation in which an increase in the price of one input will increase a firm's production costs and reduce its level of output, thus reducing the demand for other inputs; conversely for a decrease in the price of the input
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Net effect
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If the substitution effect outweighs the output effect, a decrease in the price of capital decreases the demand for labor; If the output effect exceeds the substitution effect, a decrease in the price of capital increases the demand for labor
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Least-cost combination of resources
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When the last dollar spent on each resource yields the same marginal product
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Profit-maximizing combination of resources
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When each resource is employed to the point at which its marginal revenue product equals its resource price
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