Resource markets are an integral part of the market economy, the operation of which determines the distribution of society's limited resources, production results, and the income of firms and households.

Production costs are the costs of resources purchased by firms in resource markets. The same laws of supply and demand and the same market pricing mechanism operate in these markets. However, resource markets, more than markets final products are influenced by non-economic factors.

The prices of resources that are formed in the relevant markets determine:

Income of resource owners (for the buyer, price is cost, expense; for the seller, income);

Resource allocation (obviously, the more expensive a resource, the more efficiently it should be used; thus, resource prices contribute to the allocation of resources between industries and firms);

The level of production costs of a company, which with a given technology are entirely dependent on the prices of resources.

In the resource market, the sellers are households who sell their property to enterprises. primary resources - entrepreneurial skills, land, capital, and firms that sell each other so-called intermediate products and goods necessary for the production of other goods (timber, metal, equipment, etc.). Firms act as buyers in the resource market.

The demand for resources depends on:

- demand for goods, in the production of which certain resources are used, i.e. demand for resources is derived demand;

- the maximum productivity of the resource, measured by marginal product (MP). If buying a machine gives a greater increase in output than hiring one worker, then, obviously, the company, other things being equal, will prefer to buy the machine.

Taking these circumstances into account, each company, when presenting a demand for resources, compares the income that it will receive from the acquisition of a given resource with the costs of acquiring this resource, i.e. is guided by the rule:

MRP= MRC,

Where MRP - marginal profitability of the resource;

MRC - marginal cost of a resource.

The marginal profitability of a resource, or the marginal product of a resource in monetary terms characterizes the increase in total income as a result of the use of each additional unit of input resource. By purchasing a unit of resource and using it in production, the firm will increase its production volume by the value of the marginal product (MR). Selling this product (at price R), the firm will increase its income by an amount equal to the proceeds from the sale of this additional unit, i.e.

MRP = MP*P.

Thus MRP depends on resource performance and price products.

The marginal cost of a resource characterizes the increase in production costs due to the acquisition of an additional unit of the resource. Under conditions of perfect competition, this increase in costs equal to price resource.

By purchasing and using an additional unit of resource in production, the firm increases its income (TR), but due to the law of diminishing returns, at an ever slowing pace. Obviously, the purchase of additional units of a resource will be justified only as long as the increase in income created by the resource is greater than its price.

In this way, the company determines the demand for separate resource, but production uses many resources and the final return depends not only on the productivity of a given resource, but also on the proportions in which the resources are combined. Therefore, the manufacturer needs to determine what the ratio of different resources should be or what their ratio will optimal, those. will provide the company with the lowest production costs a certain amount products.

Firm will achieve the lowest costs production of a certain volume of output if the demand for resources follows the rule of cost minimization. It states: the ratio of the marginal product of one resource to its price must be equal to the ratio of the marginal product of another resource to its price.

MP L / P L =MP K /P K ,

Where MP L And MR K - respectively, the marginal product of labor and the marginal product of capital;

P L And PK- respectively, the price of labor and the price of capital.

If this condition is met, the company is in state of balance, those. the return of all factors is the same and no redistribution of funds between resources will reduce production costs.

There are many output levels at which production costs are minimal, but there is only one the level of production that maximizes profit. This output volume allows us to determine the profit maximization rule.

The profit maximization rule is a further development of the cost minimization rule. The company will provide maximum profit, if the ratio of the marginal profitability of one resource to the price of this resource will be equal to the ratio of the marginal profitability of another resource to the price of this resource and will be equal to one, i.e.:

MRP L / P L =MRP K /P K =1.

Or, in other words, A firm maximizes profit if it uses a mix of resources such that the marginal return of each resource is equal to its price.

Demand for resources(factors of production) – the desire and ability of buyers to purchase factors of production, i.e. quantity is expressed in monetary terms. The peculiarity of demand for resources is that it has derivative character, those. depends on the demand for goods in the consumer market, because Firms buy resources not for their own consumption, but to use them in the production of goods and services.

The initial components of the formation of demand for resources is the demand for final products actually presented to consumers. Only to satisfy the demand for its products, the company buys resources. The firm needs to buy as many factors of production as required to maximize profits. Maximum profit is achieved when marginal revenue equals marginal cost.

Volume of demand for resources depends on three components:

Productivity (the return of a given resource, i.e., how many products can be produced using one unit of the resource);

Prices of goods produced with its help;

The prices of the resource itself and, accordingly, the costs that the company will incur on its consumption.

It is necessary to distinguish between price and non-price factors of demand.

Price factor is a change in the quantity of demand, which leads to the movement of points along the curve. A change in the price of a resource, with other conditions remaining unchanged, leads to a change in the volume of demand. When the price increases, the quantity demanded decreases.

Non-price factors – it is a change in demand itself.

1. Change in demand for the product (goods) in the production of which this resource is used.

2. Changing technologies– improvement of technologies leads to a reduction in costs per unit of production and to a decrease in demand for a resource at constant prices and sales volumes.

3. Changes in prices for other resources– this factor is effective depending on whether the resources are interchangeable or complementary. If resources are interchangeable, then the impact on demand for them will be the result of two opposing effects:

Substitution effect;

Economies of scale

If resources complementary, then the dynamics of demand for each of them is directly proportional to the prices of the others.

Price elasticity of demand for resources – the ratio of the percentage change in a consumed resource to the percentage change in its price or the degree of reaction of the volume of consumed resources to the degree of price change. Elasticity is measured using the elasticity coefficient (in absolute terms, as a percentage).

The price elasticity of demand is affected by:

1. Price elasticity of demand for the finished product.

2. Share of resource costs in total costs. The greater the share of total production costs that a given resource accounts for, the higher the elasticity of demand for that resource.

3. Substitutability of resources: the more substitute a resource has, the higher the elasticity of demand for it. Demand is more elastic for those factors of production that have a lower price.

Varies:

Individual demand;

Industry demand;

Market demand.

Individual demand – This is the demand for resources of an individual company, which independently makes decisions about the volume of demand for the resource.

Industry demand – the sum of the individual demands of all firms in a given industry.

Market demand – this is the sum of demands for a resource on the part of all economic entities, i.e. all industries.

58 Characterize the concepts of marginal profitability and marginal costs of a resource, equilibrium conditions in the resource market. What is the economic content of isoquants and isocosts and how are they similar to the indifference curve and budget line?

In the short run, a competitive firm has fixed equipment and tries to maximize profits or minimize losses by adjusting output through changes in variable inputs (materials, labor, etc.).

There are two approaches to determining the level of production at which a firm will maximize profits.

First way associated with a comparison of marginal cost and marginal revenue. Since the price is set for a firm that is a perfect competitor by the market, the main problem that the firm solves when maximizing profits is determining the volume of output (Fig. 58.1).

Figure 58.1 – Profit maximization based on comparison
marginal cost and marginal revenue

In the short run, the firm maximizes profit provided that marginal revenue M.R. equal to marginal cost MS and equal R. Condition MS = MR= R will be executed when Q f, since when Q< Q f ,MS< MR, The company is expanding Q, in order to get additional profit, and with growth Q f reduces output, since here MS > M.R., and the company incurs losses from each additional unit sold. MS do not take into account fixed costs.

Thus, as production volume increases, both total costs and total income increase. If the increase in income exceeds the increase in costs (that is, marginal revenue is greater than marginal cost), then a further increase in output by 1 unit increases total profit, and vice versa. Therefore, to maximize profits, a firm must expand output as long as marginal revenue exceeds marginal cost, and immediately stop producing as soon as increasing marginal costs begin to exceed marginal revenue. Maximum profit is the point of intersection of the ascending branch of the marginal cost curve with the marginal revenue curve (on the graph, this is the distance between the total revenue curve and the total cost curve - the greatest).

Isoquant– a curve showing various options combinations of factors of production that can be used to produce a given volume of product. Isoquants are also called equal product curves or equal output lines.

The slope of an isoquant expresses the dependence of one factor on another in production process. At the same time, an increase in one factor and a decrease in another do not cause changes in the volume of output. This relationship is shown in Figure 58.2.

Figure 58.2 – Isoquant

The curvature of the isoquant illustrates the elasticity of substitution of factors in producing a given volume of product and reflects how easily one factor can be replaced by another. In the case when the isoquant is similar to a right angle, the probability of replacing one factor with another is extremely small. If the isoquant looks like a straight line with a downward slope, then the probability of replacing one factor with another is significant.

Isoquants are similar to indifference curves with the only difference that indifference curves express the situation in the sphere of consumption, and isoquants - in the sphere of production. In other words, indifference curves characterize the replacement of one benefits others (MRS), and isoquants are the replacement of one factor others (MRTS).

The further the isoquant is located from the origin, the greater the volume of output it represents. The slope of the isoquant expresses the marginal rate of technical substitution (MRTS), which is measured by the ratio of the change in output.

The marginal rate of technical substitution of labor for capital(MRTS LK) is determined by the amount of capital that can be replaced by each unit of labor without causing a change in output. The marginal rate of technical substitution at any point on the isoquant is equal to the slope of the tangent at that point multiplied by -1:

Isoquants can have different configurations: linear, rigid complementarity, continuous substitutability, broken isoquant. Here we highlight the first two. Linear isoquant– isoquant expressing perfect substitutability of production factors (MRTS LK = const) (Figure 58.3).

Figure 58.3 – Linear isoquant

Hard complementarity factors of production represents a situation in which labor and capital are combined in the only possible ratio, when the marginal rate of technical substitution is equal to zero (MRTS LK = 0), the so-called Leontief-type isoquant (Figure 58.4).

Figure 58.4 – Rigid isoquant

Isoquant map is a set of isoquants, each of which illustrates the maximum allowable volume of production for any given set of factors of production. The isoquant map is alternative way production function images.

The meaning of an isoquant map is similar to the meaning of an indifference curve map for consumers. An isoquant map is similar to contour map mountains: all higher altitudes are shown using curves (Figure 58.5).

An isoquant map can be used to show the possibilities of choosing among many options for organizing production within a short period, when, for example, capital is a constant factor and labor is a variable factor.

Figure 58.5 – Isoquant map

Isocosta- a line showing the combinations of factors of production that can be purchased for the same total amount of money. Isocost is also called the equal cost line. Isocosts are parallel lines because it is assumed that a firm can purchase any desired quantity of factors of production at constant prices. The slope of the isocost expresses the relative prices of factors of production (Figure 58.6). In the figure, each point on the isocost line has the same total costs. These lines are straight because factor prices have a negative slope and are parallel.

Figure 58.6 – Isocost and isoquant

By combining isoquants and isocosts, the optimal position of the company can be determined. The point at which the isoquant touches (but does not intersect) the isocost means the cheapest combination of factors necessary to produce a certain volume of product (Fig.). In Fig. Figure 58.6 shows a method for determining the point at which production costs for a given volume of production of a product are minimized. This point is located on the isocost where the isoquant touches it.

Producer Equilibrium– a state of production in which the use of factors of production makes it possible to obtain the maximum volume of output, i.e. when the isoquant occupies the point farthest from the origin. To determine the producer's equilibrium, it is necessary to combine the isoquant maps with the isocost map. The maximum output volume will be at the point where the isoquant touches the isocost (Figure 58.7).

Figure 58.7 – Producer Equilibrium

The figure shows that the isoquant located closer to the origin of coordinates gives a smaller amount of output (isoquant 1). Isoquants located above and to the right of isoquant 2 will cause a change in a larger volume of factors of production than the producer’s budget constraint allows.

Thus, the point of tangency between the isoquant and isocost (point E in Fig. 58.7) is optimal, since in this case the manufacturer receives the maximum result.

The demand for resources, in contrast to the demand for consumer goods, is associated with production carried out by a specific enterprise (firm). Due to the fact that the goal of the enterprise is to maximize profits, it also determines the volume of demand for resources. This means that the enterprise seeks to acquire such a volume of resources, the use of which will ensure maximization of profits.

To understand the process of formation of demand for resources, it is necessary to take into account two points:

• 1) the demand for resources depends on the demand for economic goods produced from these factors, i.e., the demand for resources is derived from the demand for products;
• 2) prices for resources depend on the type market structures, where the factors and economic benefits produced from these resources are realized.

Let's begin our consideration of the formation of demand for factors with the simplest situation, when an enterprise buys a resource in a perfectly competitive market and sells its product in a perfectly competitive market.

In conditions of perfect competition, an enterprise produces and sells as many products at the prevailing market price as it considers necessary. The company has no influence on the price of its product, since specific gravity of an individual enterprise in the total volume of product is very insignificant. If the enterprise's share in production is insignificant, then, naturally, its share in the purchase of resources is small. Accordingly, an individual enterprise does not influence the price of the resource.

The volume of demand for resources depends on two factors:

• - resource productivity;
• - the market price of goods produced from this resource.

It is clear that a more productive resource will be in greater demand than a less productive one.

To illustrate the influence of the productivity of a resource and the price of a product made from it on the demand for a resource, we will use the table. 13.1. The table data is conditional. They show that the law of diminishing returns of a resource begins to operate when the resource increases by the first unit. This condition is accepted for simplification.

Table 13.1. Determining the demand for a resource in conditions of perfectly competitive markets for resources and products

The behavior of an enterprise in the resource market is determined by the rule of resource use, which is mathematically represented by the equality:

Let us explain why it is this equality that determines the feasibility of using additional units of a variable resource.

To simplify, we accept the condition that the only variable resource1 for the enterprise is labor. This condition is acceptable because, firstly, labor is the most common resource owned by households; second, the demand for other resources is derived similarly to the demand for labor.

In general, the behavior of an enterprise in the resource market will be as follows: in an effort to maximize profit, it will try to increase additional units of factors until the additional unit of resource brings an increase total income(MRP).

Then the rule for the profitable use of resources for an enterprise can be formulated as follows: for an enterprise, the profitable use of additional units of a variable factor lasts until the MRP of the resource is balanced with the MRC.

Naturally, each additional unit of resource requires additional costs from the entrepreneur. The amount by which an enterprise's costs increase with each additional unit of factor involved is called the marginal resource cost (MRC).

For a perfectly competitive market, the marginal revenue (income) from the marginal product (MRP) is equal to the marginal cost (value) of the product (VMP), which is determined by the formula VMP - MP Px, which will be discussed in more detail using the example of an imperfectly competitive resource market.

In relation to labor, the above means that in a perfectly competitive labor market, the wage rate is set by the market demand for labor and the market supply of labor. An individual enterprise cannot influence the wage rate due to its very small share in the market demand for hired labor.

Accordingly, the total costs of the resource “labor” increase by the amount of the wage rate for each

This indicates that MRPL is the labor demand curve.

We examined the demand for a variable resource in conditions of perfectly competitive factor and product markets. We should consider the effect of monopoly on the demand for resources now.

The production costs discussed above represent the costs of resources purchased by firms in resource markets. The same laws of supply and demand and the same market pricing mechanism operate in these markets. However, resource markets, to a greater extent than final product markets, are influenced by non-economic factors - the state, trade unions, and others. public organizations(Green movement, etc.).
The prices of resources that are formed in the relevant markets determine:
. income of resource owners (for the buyer, price is a cost, expense; for the seller, it is income);
. resource allocation (obviously, the more expensive a resource, the more efficiently it should be used; thus, resource prices contribute to the allocation of resources between industries and firms);
. the level of production costs of the company, which with a given technology are entirely dependent on the prices of resources.
In the resource market, sellers are households that sell enterprises the primary resources they own - labor, entrepreneurial abilities, land, capital and firms that sell each other so-called intermediate products - goods necessary for the production of other goods (timber, metal, equipment etc.). Firms act as buyers in the resource market. Market demand for resources is the sum of the demands of individual firms. What determines the demand for resources presented by an individual firm?
The demand for resources depends on:
. demand for a product in the production of which certain resources are used, i.e. The demand for resources is a derived demand. Obviously, if the demand for cars increases, then their price increases, output increases and the demand for metal, rubber, plastic and other resources increases;
. the marginal productivity of a resource, measured, recall, by the marginal product (MP). If the purchase of a machine gives a greater increase in output than hiring one worker, then, obviously, the company, other things being equal, will prefer to buy the machine.
Taking these circumstances into account, each company, when presenting a demand for resources, compares the income cat. she will receive from the acquisition of this resource, with the costs of acquiring this resource, i.e. is guided by the rule:

MRP = MRC,
Where
MRP - marginal resource profitability;
MRC is the marginal cost of a resource.
The marginal return of a resource or the marginal product of a resource in monetary terms characterizes the increase in total income as a result of the use of each additional unit of input resource. By purchasing a unit of resource and using it in production, the firm will increase its production volume by the value of the marginal product (MP). By selling this product (at price p), the firm will increase its income by an amount equal to the revenue from the sale of this additional unit, i.e.

MRP = MP × p.
Based on the above, we come to the conclusion that MRP depends on the productivity of the resource and the price of the product.
The marginal cost of a resource characterizes the increase in production costs due to the acquisition of an additional unit of the resource. In conditions of perfect competition, this increase in costs is equal to the price of the resource.
Let us assume that a firm, with a given amount of capital (C), can expand its output (TR) by increasing the number of workers (L) (Table 8.1).

Table 8.1

Number of workers (L)	Cumulative product, units (TP)	Limit product, units (MR)	Product price, monetary units (r)	Limit product in monetary expression, monetary units (MRP)
0	0		2
		30		60
1	30		2
		25		50
2	55		2
		23		46
3	63		2
		13		26
4	76		2
		9		18
5	85		2
		5		10
6	90		2

By hiring each additional worker, the firm increases its income, but due to the law of diminishing returns, at an ever slower pace. The first worker increased the company's income by 60 den. units, the second - for 50 den. units, the third - at 46 den. units etc. Let's assume that wages is 30 den. units, then the firm will hire three workers, since each of them will create income greater than his wages. The fourth and subsequent workers would bring losses to the company, since their wages would exceed income, cat. they could bring.
In this way, the firm determines the demand for a single resource, but production uses many resources and the final return depends not only on the productivity of a given resource, but also on the proportions in which the resources are combined. After all, a worker’s productivity depends not only on his ability, skills, and qualifications, but also on how technically equipped his work is. This raises the question, what should be the ratio of different resources or what ratio will be optimal, i.e. will provide the company with the lowest cost of producing a certain amount of product.
The firm will achieve the lowest production costs of a certain volume of output if the demand for resources follows the rule: the ratio of the marginal product of one resource to the price of this resource is equal to the ratio of the marginal product of another resource to the price of this resource, etc., i.e.

Where
MPL and MPC are, respectively, the marginal product of labor and the marginal product of capital;
рL and рС - respectively, the price of labor and the price of capital;
If this condition is met, the firm is in a state of equilibrium, i.e. the return of all factors is the same and no redistribution of funds between resources will reduce production costs.
There are many output levels at which production costs are minimal, but there is only one output volume, cat. ensures maximum profit. What combination of resources will maximize profits?
The profit maximization rule is a further development of the cost minimization rule. The company will ensure maximum profit if the ratio of the marginal profitability of one resource to the price of this resource is equal to the ratio of the marginal profitability of another resource to the price of this resource and is equal to one, i.e.:

Or in other words, a firm maximizes profit if it uses a ratio of resources such that the marginal return of each resource is equal to its price.

Resources are the basis of the economy. Today, labor as a factor of production comes to the fore. The demand for a resource depends on how it can be used. The price is also important. However, economic laws also apply here. The price of demand for resources is an increase in its value on the market. If it grows too fast, no one will want to buy them anymore. This is why the equilibrium caused by the intersection of supply and demand curves is so important.

Basic Concepts

Production in economics refers to any human activity associated with the use of resources. Nature cannot give man everything he needs, so he has to invent what is missing. Thus, the demand for a resource depends on what products are produced from it. The more valuable they are, the more it will be. represent a set of natural, social and spiritual forces used in the process of creating goods, providing services and producing any other value.

Types and factors

Consumer demand is determined by the price and productivity of resources. To simplify research, the latter are usually divided into four groups:

• Natural. This group includes natural forces and substances that can be used in production. When speaking about natural resources as factors of production, economists often mean only land in their studies. The price for its use is called rent. It is important to control the use of exhaustible resources first.
• Material. This group includes everything that is created by human hands. They are not only used in the production of goods and services, but are themselves the result of the production process.
• Labor. This type resources is the social capital of a country or region. They are usually assessed according to three parameters: socio-demographic, qualification and cultural-educational.

These three types are classified as basic resources. Derivatives include finance. You need to understand the difference between factors of production and resources. The latter concept is much broader in scope. Factors are resources that are already involved in the production process. These include:

• Earth. In a number of industries, for example, agriculture, this factor acts not only as a means of labor, but also as its subject. Land can also act as an object of property.
• Capital. This factor includes all material and financial resources used in production.
• Work. This factor refers to the part of the population that is employed in production.

Sometimes they are isolated separately because the effectiveness depends on them national economy in general and individual economic entities.

Economic assessment

A key research issue is resource analysis. During the economic assessment, the quality of production factors, the profitability or unprofitability of their use in the production process are correlated. The analysis also takes into account the patterns of spatial distribution of resources. Researchers evaluate the expected economic impact of their use. When it comes to natural resources, this is how scientists decide which deposit to develop first. Depending on the availability of certain factors necessary in production, consumer demand for them is formed.

Limited resources

Everyone understands the possibility of insufficiency of one or another factor. It can be easily assessed, so it is considered an objective fact. A distinction is made between absolute and relative insufficiency of resources. The first concept implies a set of factors that are needed to meet the needs of the entire society. If resources are quite sufficient for a specific narrow area, then insufficiency is considered relative. This is the real situation. To produce product A, you need to reduce the output of product B. Choice optimal option limited by the number of options on the production possibility curve.

Demand for economic resources

The production process uses such natural, material and labor factors. They are considered basic. The following determinants of the formation of demand for a resource are identified:

• Marginal product of a factor of production.
• Elasticity of demand for an economic resource.

Ultimate Performance

The demand for a resource depends on how it can be used in the process of producing goods and services and what the effect of its use is. Marginal utility depends on the increase in output resulting from the use of each new additional unit. In the short term, this indicator first increases and then begins to decrease. In conditions of perfect competition, the cost of a resource is the marginal cost of a factor of production. Any business firm strives to maximize its profits. Therefore, it increases the consumption of resources until the moment when it does not begin to exceed the income from the use of the new unit.

Price as a determinant

The demand for a resource depends on its cost. However, it is important to consider the concept of elasticity. Let's consider a situation where the market exists. In this case, the demand for the company's products is completely elastic. A more complex case is imperfectly competitive markets. Here the company does not adapt to prices, but sets it itself. Each additional unit of resource is hired as its productivity and price increase.

Elasticity of the demand curve

This graph displays all the needs of various sectors of the economy for these resources. The demand curve takes into account the following elasticity factors:

• The rate of increase (decrease) in the marginal product of a factor in monetary terms. If returns decline slowly, firms will be willing to accept a small price reduction. Here we are dealing with elastic demand for a resource.
• The demand curve also takes into account the degree and possibilities of factor substitution. If we have no alternative to a given resource or technology, then the demand for it is inelastic. In the analysis, it is also important to take into account not only the short-term period, but also the future prospects.
• Elasticity of demand for the company's products. Here we can consider a perfectly competitive market. Demand for it will be completely elastic. Another situation is possible when the company itself influences the prices of its products. In this case, the demand for the resource will also be inelastic.
• Share in total costs. The higher it is, the more elastic the demand for resources is.

The cost of factors of production is a key factor that determines the monetary profits of business firms. It carries out the function of distributing all available resources across various industries farms. The higher the rate of profit, the wider the influx of factors. The demand for a resource is directly proportional to productivity and its market price. The company uses a set of factors that ensures it maximizes profits. The elasticity of demand for a resource depends on whether the business firm in question itself sets prices for its products. Demand formation factors such as resource productivity and its price are identified.