Contrast the factors that underlie the down sloping resource demand curve with those which underlie the down sloping product demand curve
What will be an ideal response?
The down sloping resource demand curve is related to the resource’s MRP schedule. A firm will hire additional units of a resource as long as each successive unit adds more to the firm’s revenue than it does to its costs. The factors behind the MRP curve’s down sloping include diminishing returns to a factor of production as successive amounts are added in the short run, and the fact that the demand for the product produced is down sloping also causing marginal revenue to decline as successive product units are produced. The down sloping product demand curve is thus one factor in the down sloping resource demand curve and the factors which cause the product demand curve to slope downward are the income and substitution effects. Since resource demand is a derived demand, these factors indirectly affect the shape of the resource demand curve.
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Some economists argue that unemployment compensation increases the natural rate of unemployment because it increases the amount of time people spending finding new work while without work
Additionally, it makes unemployment more visible with the steady growth in urbanization. Indicate whether the statement is true or false
Which of the following is correct?
A. The excess capacity problem diminishes as the monopolistically competitive firm's demand curve becomes less elastic. B. The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve. C. The greater the degree of product variation, the lesser is the excess capacity problem. D. The greater the degree of product variation, the greater is the excess capacity problem.