The derivative nature of the demand for resources means that the sustainability of the demand for any resource will depend on

• 1) resource productivity when creating a product;
• 2) the market value, or price, of a commodity produced with the help of a given resource;

In other words, a resource that is highly productive at producing a good valued by society will enjoy in great demand. On the other hand, demand will be sluggish for a relatively unproductive resource that can only produce some good that is not in high demand among households. And there will be no demand for a resource that is phenomenally efficient at producing something no one wants to buy!

The role of productivity and price of a product in determining the demand for resources can be clearly shown using Table 1.

Table 1: Demand for a resource: product sales under pure competition (hypothetical data)

Resource units	Whole product	Marginal Product (MP)?(2)	Product price	Total income (2x 4)	Marginal product in monetary terms (MRP)? (5)

It is assumed that the firm acquires one variable resource - labor - for its plant. The data in columns 1-3 remind us of the possibility of applying the law of diminishing returns in this situation, according to which the marginal product of labor (MP) falls below a certain point. economic income resource competition

For simplicity, it is assumed that the decrease in marginal product starts with the first worker hired.

It has already been emphasized that the derived demand for a resource depends not only on the productivity of that resource, but also on the price of the product produced by that resource. Column 4 gives information about the price. Note that the price of the product is constant, in this case equal to $2, because we assume the existence of a competitive market for the product. Multiplying the data in column 2 by the data in column 4, we get the total income in column 5. From the data on total income, it is easy to calculate the marginal product in monetary terms (MRP) - the increase in total income resulting from the application of each additional unit of a variable input factor of production (in this case - labor). It is listed in column 6.

Resource usage rule:

MRP figures - columns I and 6 - show the values ​​of the firm's demand for labor. To explain why this is so, we first need to figure out the rule that the firm follows to make a profit when using any resource. To maximize profit, a firm must use additional units of any given resource until each successive unit increases the firm's total revenue rather than its total cost. Economists have special terms to denote both the increase in total costs and the increase in total income as a result of the application of each additional unit of labor or other variable resource. We have already noted that, by definition, MRP shows what the increase in total income is as a result of the use of each subsequent hired worker. The amount by which each additional unit of a resource increases costs (resource costs) is called the marginal resource cost (MRC). So, we can reformulate the resource use rule as follows: it will be profitable for the firm to use additional units of the resource up to the point where the MRP of this resource equals MRC. If the number of workers the firm is currently hiring is such that the MRP of the last worker hired exceeds his or her MRC, then the firm will clearly profit from hiring more workers. But if the number of hires is such that the MRC of the last worker exceeds the MRP, then the firm hires workers who are "not self-paying," and so it can increase its profits only by laying off some workers. The reader will agree that this rule - MRP = MRC - is very similar to the profit maximization rule - MR = MC - used in determining prices and output. The rationale for both rules is the same, but the focus is now on input costs rather than output.

Whatever the company does, it in any case works for the result. And this result is produced can be both real and immaterial. At a machine-building plant, machines are the product of production, at a candy factory - sweets, in the medical field - the number of patients served, at the university - the number of graduates.

Various resources are used in the production of products. These are money, equipment, land, fossils, human labor. Labor is also a product. It is divided into general, average and marginal. The marginal product of labor is the additional expansion of production resulting from an increase in one unit. The rest of the factors of production remain unchanged.

What is the marginal product of labor?

The volume of products manufactured by the company, of course, depends directly on the number of employees. Average product labor shows the effectiveness (productivity) of the work of the team as a whole. For example, 24 masters made 10 tables in an hour, and 12 masters of another salon made the same number of products in the same period of time. So their work is more efficient.

What does the marginal product of labor actually represent?

The marginal product of labor is equal to the increase in the volume of output divided by the variable resource. In other words, this indicator makes it clear how much productivity increases due to the use of a new variable resource in the same unit of time. For example, a new resource may be a new workforce, equipment, or technology.

How many workers to hire

For any firm seeking to successful work and development, it is important to determine how many working people are needed for maximum efficiency. It would seem that the more employees, the higher the volume of production? Not at all.

When the average marginal product of labor reaches its maximum, it becomes equal to the value of the marginal product. This means that an increase in the number of employees will lead to a decline in production. This equality can be determined by a special calculation that takes into account at least two variable resources - labor and capital.

What does wages depend on?

With a fair and correct calculation, the head of the company can determine the highest possible wages for the work of hired employees, while maintaining the growth of the profits of his enterprise. Wage and marginal product of labor are interdependent concepts. When the enterprise maintains the optimal ratio of variable resources and the number of labor resources involved, then there is an increase in productivity. Accordingly, this leads to stable wages. If the enterprise does not have enough variable resources (for example, the same amount of capital invested in production), then attracting new units of labor will eventually lead to decreasing productivity, which subsequently affects the wages of the staff as a whole.

Everything in close connection from formulas and calculations

Considering that the marginal product of labor is additionally produced products by attracting an additional labor unit, it is also necessary to take care of investing additional capital in production. A simple example: if a company invests in the purchase of 100 tons of meat for the production of sausages, and 100 employees of the company produce products, then with an increase in staff by 50 additional jobs, the company will reduce its profit due to the need to pay additional wages to new employees.

And the number of products produced is the same. It turns out that with an increase in the number of employees, it is necessary to increase the purchase of raw materials. Therefore, increase the invested capital. But so that the marginal product of labor and the capital invested in production have the proper ratio. That is, the additional amount of output produced should bring income to the company in excess of the invested capital costs.

Of course, any employee dreams of getting more salary at work. Money is needed primarily to satisfy material needs. By working more, a person earns more income. This is ideal. But over time, when income increases so much that it covers all basic needs, there comes a period when the worker prefers leisure rather than work. And no longer strives for greater productivity in the process of performing their duties. Thus, when wages rise, the income effect conflicts with the substitution effect.

Not to your own detriment

Defining optimal amount involved labor resource, it is necessary to take into account all available indicators. This includes the number of employees, and total costs, and marginal costs, and overall productivity. When hiring a new employee, the head of the company looks at how much the revenue from his work is commensurate with the costs that are inevitable with the need to hire him.

And here there are such concepts as the marginal product of labor in monetary terms and the marginal product of labor in physical terms. First of all, labor costs are taken into account. This is a cost to the business. And this wage should be competitive. Otherwise, good employees will look for other firms where their work will be appreciated. At the same time, the head of the company is not entitled to establish wages for labor that exceed the revenue that the labor of the employee brings, or equal to it.

Features and need for modernization

As long as the profit of the enterprise exceeds the cost of labor, the head of the company can invite new employees to work and receive additional profit. The marginal product of labor will rise. But there is another way: without expanding the staff, the company invests additional costs in the modernization of production.

Upgrading equipment, increasing labor productivity due to this, the company provides itself with profit growth.

Marginal product of labor in monetary terms shows how much the total income of the firm has increased when using the same labor units using progressive modern equipment. With the correct calculation, the cost of equipment will pay off in a certain period of time and will begin to bring net profit. And this is more profitable than attracting new employees, the costs of which remain unchanged or even grow.

Ratio of labor to capital income

So the marginal product of labor is the surplus product. It is obtained using additional labor units. And the marginal product of capital is the additional goods and services received as a result of additional investment Money. And the company is interested in purchasing new technologies until the marginal product equals the real cost of capital. The company will receive economic profit when it pays for all stages of production, there will also be “money from above”. More broadly, the national income as a whole is then distributed among the income of workers, the income of the owners of capital, and economic profit.

One of the American senators - Paul Douglas - in 1927 thought about a strange phenomenon. The indicator of national income has not changed for years, working and businessmen alike enjoy the results of increased production and a progressing economy. The senator wanted to know the reason for the constancy of the shares of production factors and turned to the famous mathematician Charles Cobb for calculations. Thus was born the famous production function Cobb-Douglas, confirming that the ratio of labor to capital income is unchanged. And the shares of factors of production depend only on the share of labor in income, but do not depend on the number of factors themselves and the level of development of the industrial industry.

Flexibility of the production process

A competent leader will always find the perfect combination production factors to increase profits and reduce business costs. Recall that the marginal product of labor is closely related to the amount of capital used. With an increase in the output of goods and services, the marginal product will increase, and vice versa - with a decrease in output, it also falls.

It is not enough just to increase the number of services and goods produced. It is more important that these goods are in demand and sold. The value of the marginal product of labor is equal to the income from the marginal product of labor for any amount of resource used. Search and find markets for the sale of goods, be able to negotiate and implement competitive goods and services - this is the task of the head of the company and his assistants.

Decreasing productivity

There is such a thing as the "law of diminishing productivity". It is brought to the rank of "law", because it is characteristic of all industries without exception. That is, this is what happens: a gradual increase in any of the factors of production per unit initially brings profit, but then from a certain moment it begins to decrease. Thus, at first there is an increase in the value of the marginal product of labor, and then this value is reduced. Why is this happening?

At a time when labor costs are low and capital is still unchanged, the head of the firm decides to increase the units of labor. And this results in increased profits. But when there are many workers, and the invested capital remains the same, some of the workers work inefficiently, and then the profit of the enterprise falls.

A simple example: 10 people work on the potato harvest. But then the eleventh worker comes, but the volume of production does not change with his arrival, since the land is the same, the harvest is almost the same. In this case, as a rule, without reducing the staff, the company introduces technological improvements, and the volume of output grows again. That is, on the same land plot you can grow a richer crop with the use of the latest technologies. Then the cost of wages for the eleventh employee will be justified by the increased profits of the company.

Work only with profit

So, the marginal productivity of labor and the marginal product of labor are interrelated concepts. And they mean an increase in the volume of production due to the use of an additional unit of labor. The head of the company takes into account all factors of production in the preparation of short-term and long-term plans. He tries to be flexible in improving production processes, observing the dynamics of all indicators.

The hiring of new employees will also occur gradually, as will the increase in invested capital, if the possibilities for reducing production costs have been exhausted. And the main indicator right decisions the head of the firm and his assistants, managers, is the growth of profits of the enterprise. And since the marginal product of labor is, in fact, profit, this indicator is the main one.

Marginal product and its monetary value

marginal product MR (marginal product) is called additional products produced with the help of an increment of a given factor of production:

The change in the firm's total revenue resulting from the use of an additional unit of a resource. It is assumed that the amount of all other resources used remains unchanged.

Marginal product in monetary terms MRP (marginal revenue product) is the additional income received from the sale of an additional unit of production:

Marginal product in money terms equals the change in total revenue divided by the change in the amount of resource used.

The optimal ratio of resources: the rule of minimizing costs and maximizing profits

The marginal cost of resources MRC (marginal resource cost) - additional costs for acquiring an additional unit of a resource are called:

According to the resource use rule, the producer acquires additional resources until the value of the marginal product in monetary terms is equal to the marginal cost of resources:

The cost minimization rule is as follows: the cost of producing a certain volume of output becomes minimal if the ratio of the marginal product of one factor of production to its price is equal to the ratio of the marginal product of another factor of production to its price:

MP1/P1= MP2/P2,

where 1 and 2 are factors of production.

The profit maximization rule can be formulated as follows: the firm's profit becomes maximum if the ratio of the marginal product in monetary terms of one factor of production to its price is equal to the ratio of the marginal product in monetary terms of another factor of production to its price, while both ratios are equal to one:

MRP1/P1= MRP2/P2=1.

Conclusion

AT market economy factors of production act as commodities. This means that they, like ordinary goods, are subject to purchase and sale in the respective factor markets. The buyers in these markets are entrepreneurs as representatives of enterprises (firms) that are in need of such factors of production as capital, labor and land. Accordingly, manufacturers of means of production, the working population, land owners can be sellers in such markets.

The factors of production can be divided into two types: the personal factor - workers - and the material factor - the means of production. For the coordinated functioning of the factors of production, it is necessary to use them in the correct quantitative ratios. It is necessary to find such a ratio of these factors, which will allow to extract the greatest benefit from their use. That is, it is necessary to determine such a combination of factors of production, in which the costs of the enterprise would be minimal, and the efficiency of production would be maximum. This combination is constantly changing as a result of changes in the prices of factors of production.

Topic 7. Fundamentals of the theory of the resource market

Features of demand and supply of resources.

Principles of demand for the resources of a profit maximizing firm.

The marginal product of a resource in terms of money.

marginal cost to the resource.

Demand for a resource in the short and long run.

As you know, the demand for final goods and services is presented by households acting as buyers. The offer of goods and services is created by firms acting as sellers. How is the demand for factors of production formed, who makes it, and how is it determined? hallmark factor markets is the fact that firms act as buyers here, and households are sellers, or, in other words, the subjects of demand are firms, and the subjects of supply are households. At the heart of consumer demand, as we know, is the utility function. At the heart of the demand for factors of production is the income that the firm seeks to obtain by producing various goods and services with the help of these factors. This means that the firm makes a demand for resources only insofar as the consumer needs the goods produced with these resources, and not vice versa. For example, shoe factories demand leather and shoemakers because consumers demand leather shoes. Thus, in economic theory demand for factors of production is called derived demand. This is the first and very significant difference between demand in the markets for factors of production and demand in the markets for final goods and services.

It was said above that manufacturing process is a process of interaction of various factors of production. It is impossible to organize the production process, having, for example, capital, but not having labor power, and vice versa, i.e., no single factor can produce a product. Hence it follows that demand for factors of production is interdependent. This is the second significant difference between demand in the markets of factors and demand in the markets of final goods and services. The firm, presenting the demand for factors, is faced with the need to solve the following problems:

Optimal combination factors of production;

Minimization of costs for each given volume of production;

Determining the volume of production that maximizes the amount of profit.

Let us consider in more detail how these three tasks are solved.

What underlies the firm's demand for factors of production and what determines its boundaries? At first glance, the answer seems obvious - resource prices. However, the derivative nature of the demand for factors on the part of the firm predetermines its dependence also on the productivity of the factors, and on the level of prices for products produced with the help of these factors. The productivity of a variable factor can be measured not only in physical, but also in monetary units. The cost indicator of factor productivity is the marginal product of the factor in monetary terms, or the marginal income from the product of the factor used. Marginal factor product in monetary terms (MRP L) is the product of the marginal physical product of a variable factor (for example, L) and the marginal revenue received from the sale of one additional unit of output:

MRP L = MP L · MR Q

where MRP L is the marginal product of the factor L in monetary terms; MP L - marginal product of factor L in physical terms; MR Q is the marginal revenue from the sale of an additional unit of output.

Thus, the marginal product of the factor in monetary terms shows the increase in total income as a result of using one more (additional) unit of the variable factor L, with the number of all other factors unchanged.

In conditions of perfect competition, when firms are "price takers", the marginal product of factor L in monetary terms is the product of the marginal product of factor L in physical terms and the unit price of output:

MRP L = MP L · P

where P is the price of a unit of output. Recall that under perfect competition P = MR.

As is known, under the conditions imperfect competition the marginal revenue from the sale of an additional unit of output will be less than its price. This means that, ceteris paribus, the marginal factor product in monetary terms (MRP L) of a perfect competitor will be greater than that of a pure monopolist.

Consider the situation on the example of a company that produces leather shoes and sells it in a competitive market. Let us assume that the number of units of capital used by the firm is a constant value, and the number of workers employed is a variable value. Suppose that the next hired worker produces three pairs of shoes per day, which can be sold at a market price (P) equal to 100 rubles. for a couple. In this case, the marginal product of labor in monetary terms will be 300 rubles:

MRP L = MP L · MR Q = MP L · P = 3 · 100 rubles = 300 rubles

data on the marginal product of labor shoe factory are contained in the table below.

Tab. Marginal product of labor in money terms

By hiring each subsequent worker, the firm increases its income, but due to the law of diminishing returns, at a slower pace. The first worker increased the firm's income by 60 den. units, the second - for 50 den. units, the third - for 46 den. units etc. Suppose the salary is 30 den. units, then the firm will hire three workers, since each of them will generate income greater than his wages. The fourth and subsequent workers would bring losses to the firm, since their wages would exceed the income that they could bring.

Thus, the firm determines the demand for a separate resource, but many resources are used in production and the final return depends not only on the productivity of this resource, but also on the proportions in which the resources are combined. After all, the productivity of a worker depends not only on his skills, skills, qualifications, but also on how technically equipped his work is. This raises the question of what should be the ratio of different resources or what their ratio will be optimal, i.e. provide the firm with the lowest cost of production a certain amount products.

The firm will achieve the lowest production costs of a certain output if the demand for resources obeys 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.

And - respectively, the marginal product of labor and the marginal product of capital;

And - 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 levels of output at which production costs are minimal, but there is only one level of production that maximizes profit. What combination of resources will maximize profits?

The profit maximization rule is a further development of the cost minimization rule. The firm 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 on each resource is equal to its price.