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? LO16.1
Problem 2
In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)? Why didn't GM reduce employment by more than 21,000 workers? By fewer than 21,000 workers? \(\lfloor\) O16.3
Problem 3
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 X? Where there is any uncertainty as to the outcome, specify the causes of that uncertainty. \(\angle 016.4\) 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 \(\mathrm{C}\) 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 \(\mathrm{E}\). f. A decline in the elasticity of demand for product \(X\) due to a decline in the competitiveness of product market \(X\).
Problem 4
In each of the following four cases, \(\mathrm{MRP}_{L}\) and \(\mathrm{MRP}_{C}\) refer to the marginal revenue products of labor and capital, respectively, and \(\mathrm{P}_{L}\) and \(\mathrm{P}_{C}\) refer to their prices. Indicate in each case whether the conditions are consistent with maximum profits for the firm. If not, state which resource(s) should be used in larger amounts and which resource(s) should be used in smaller amounts. LO16.5 a. \(\operatorname{MRP}_{L}=\$ 8 ; P_{L}=\$ 4 ; \operatorname{MRP}_{C}=\$ 8 ; P_{C}=\$ 4\) b. \(\mathrm{MRP}_{L}=\$ 10 ; \mathrm{P}_{L}=\$ 12 ; \mathrm{MRP}_{C}=\$ 14 ; \mathrm{P}_{C}=\$ 9\) c. \(\operatorname{MRP}_{L}=\$ 6 ; P_{L}=\$ 6 ; \operatorname{MRP}_{C}=\$ 12 ; P_{C}=\$ 12\) d. \(\mathrm{MRP}_{L}=\$ 22 ; \mathrm{P}_{L}=\$ 26 ; \mathrm{MRP}_{C}=\$ 16 ; \mathrm{P}_{C}=\$ 19\)
Problem 5
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? LO16.5
