Economics Principles, Problems, and Policies

Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn

Chapter 12

The Demand for Resources - all with Video Answers

Educators

Chapter Questions

Problem 1

What is the significance of resource pricing? Explain how the factors determining resource demand differ from those determining product demand. Explain the meaning and significance of the fact that the demand for a resource is a derived demand. Why do resource demand curves slope downward? LOI

Armaan Tourani

Armaan Tourani

Numerade Educator

Problem 2

KEY QUESTION At the bottom of the page, complete the labor demand table for a firm that is hiring labor competitively and selling its product in a competitive market. LO2
a. How many workers will the firm hire if the market wage rate is $$ 27.95 ?$$ S19.95? Fxplain why the firm will not hire a larger or smaller number of units of labor at each of these wage rates.
b. Show in schedule form and graphically the labor demand curve of this firm.
c. Now again determine the firm's demand curve for labor, assuming that it is selling in an imperfectly competitive market and that, although it can sell 17 units at $$ 2.20$$ per unit, it must lower product price by 5 cents in order to sell the marginal product of each successive labor unit. Compare this demand curve with that derived in question $2 b .$ Which curve is more elastic? Explain.

Armaan Tourani

Numerade Educator

Problem 3

Suppose that marginal product tripled while product price fell by one-half in Table $12.1 .$ What would be the new MRP values in Table $12.1 ?$ What would be the net impact on the location of the resource demand curve in Figure $12.1 ?$ LO2

Armaan Tourani

Numerade Educator

Problem 4

In 2005 General Motors (GM) announced that it would reduce employment by 30,000 workers. What does this decision reveal about how it viewed its marginal revenue product (MRP) and marginal resource cost (MRC)? Why didn't GM reduce employment by more than 30,000 workers? By fewer than 30,000 workers? $L O 3$

Armaan Tourani

Numerade Educator

Problem 5

What factors determine the elasticity of resource demand? What effect will each of the following have on the elasticity or the location of the demand for resource $\mathrm{C},$ which is being used to produce commodity $\mathrm{X}$ ? Where there is any uncertainty as to the outcome, specify the causes of that uncertainty. LO4
a. An increase in the demand for product $X$.
b. An increase in the price of substitute resource D.
c. An increase in the number of resources substitutable for
C in producing $X$.
d. A technological improvement in the capital equipment with which resource $\mathrm{C}$ is combined.
e. A fall in the price of complementary resource $E$.
f. A decline in the elasticity of demand for product $X$ due to a decline in the competitiveness of product market $X$.

Armaan Tourani

Numerade Educator

Problem 6

Suppose the productivity of capital and labor are as shown in the accompanying table. The output of these resources sells in a purely competitive market for SI per unit. Both capital and labor are hired under purely competitive conditions at $$ 3$$ and $S 1,$ respectively. (TABLE CANNOT COPY)
a. What is the least-cost combination of labor and capital the firm should employ in producing 80 units of output? Explain.
b. What is the profit-maximizing combination of labor and capital the firm should use? Explain. What is the resulting level of output? What is the economic profit?
Is this the least costly way of producing the profitmaximizing outn

Armaan Tourani

Numerade Educator

Problem 7

In each of the following four cases, $\mathrm{MRP}_{L}$ and MRP $_{c}$ refer to the marginal revenue products of labor and capital, respectively, and $P_{L}$ and $P_{C}$ refer to their prices. Indicate in each case whether the conditions are consistent with maximum profits for the firm. If not, state which (TABLE CANNOT COPY)
resource(s) should be used in larger amounts and which resource(s) should be used in smaller amounts. LO5
a. $\mathrm{MRP}_{L}=\mathrm{S} 8 ; P_{L}=\mathrm{S} 4 ; \mathrm{MRP}_{C}=\mathrm{S} 8 ; P_{C}=\mathrm{S} 4$
b. $\mathrm{MRP}_{L}=\mathrm{S} 10 ; P_{L}=\mathrm{S} 12 ; \mathrm{MRP}_{C}=\mathrm{S} 14 ; P_{C}=\mathrm{S} 9$
c. $\mathrm{MRP}_{t}=\mathrm{S} 6 ; P_{t}=\mathrm{S} 6 ; \mathrm{MRP}_{C}=\mathrm{S} 12 ; P_{C}=\mathrm{S} 12$
d. $\mathrm{MRP}_{L}=\mathrm{S} 22 ; P_{L}=\mathrm{S} 26 ; \mathrm{MRP}_{C}=$ 16 ; P_{C}= $\mathrm{S} 19$

Armaan Tourani

Numerade Educator

Problem 8

Florida citrus growers say that the recent crackdown on illegal immigration is increasing the market wage rates necessary to get their oranges picked. Some are turning to $\$ 100,000$ to $\$ 300,000$ mechanical harvesters known as "trunk, shake, and catch" pickers, which vigorously shake oranges from the trees. If widely adopted, what will be the effect on the demand for human orange pickers? What does that imply about the relative strengths of the substitution and output effects? LO5

Armaan Tourani

Numerade Educator

Problem 9

Explain the economics of the substitution of ATMs for human tellers. Some banks are beginning to assess transaction fees when customers use human tellers rather than ATMs. What are these banks trying to accomplish?

Armaan Tourani

Numerade Educator