A ZH E N I (marginal revenue product, MRP) - additional
revenue from the sale of additional volume of products received
when resource use increases by one (279)
ENTREPRENEURSHIP, ENTREPRENEURSHIP
ABILITY (entrepreneurial ability), CONTROL (managerial
skills)- ability to rationally and most effectively
combine (use) resources to produce economic
REPRESENTATIVE DEMOCRACY (representative democracy)
A political system in which citizens
periodically elect representatives to elected bodies of power.
PROFIT (profit) - is defined as the difference between the total
revenue (total revenue) and total costs (total
cost): 7i = TR - TS. (192)
PROBLEM (from Greek “task”, “task”) - clearly formulated
question or set of questions that arose during the process
knowledge. (18)
THE PROBLEM OF THE FREE RIDER, THE "HARE" (free-rider problem)
The problem associated with consumer desire
do without unnecessary payments, receiving benefits from purely public
goods (which are provided to all consumers regardless
whether they pay for it or not). (431)
"FAILURES" (FIASCO) OF THE STATE (GOVERNMENT)
(government failures)- cases when the state (government)
unable to ensure efficient distribution and
use of public resources (464)
"FAILURES" (FIASCO) OF THE MARKET (market failures) - situations,
when the mechanism of competitive markets does not lead to
to maximizing social utility. (432)
DERIVATIVE DEMAND (derived demand) - demand for resources,
depending on the demand for the final products produced
based on these resources (279)
PRODUCTION FUNCTION (production function)
of a company producing a certain product Q - shows the maximum
548 Brief dictionary of economic terms
the smallest possible volume of production of this product when used
all possible combinations of production factors: Q=f(F1,F2,...Fn).
A simplified version of the production function - dependence
goods Q from labor (L) and capital (K): Q = f(L, K). (46, 158)
PRODUCTION CAPABILITIES production capacity
Society's ability to produce economic
benefits with full and effective use of all available
resources at a given level of technology development. (48)
RISK AGAINST (risk aversion) - a person who
given expected income will prefer a certain, guaranteed
the result of a series of uncertain, risky outcomes. (359)
TRADE UNION (trade union) - an association of workers with
the right to negotiate with the entrepreneur from
on behalf of and on behalf of its members. (259)
PERCENT (interest) - see Loan interest.
DIRECT DEMOCRACY (direct democracy)- political
a system in which every citizen has the right personally
question. (450)
BERTRAND EQUILIBRIUM (Bertrand equilibrium) - describes
market situation in which, in a duopoly firm
compete for the price of goods for a given volume of output of each
firm Equilibrium stability is achieved when the price
turns out to be equal to marginal costs, i.e. competitiveness is achieved
equilibrium. (253)
COURNAUT EQUILIBRIUM(Cournot equilibrium) - achieved
in the market when, in a duopoly, each firm, acting
independently selects the optimal production volume,
what the other company expects from it. Cournot equilibrium
arises as the point of intersection of the response curves of two firms.
PRODUCER EQUILIBRIUM- limit technical norm
factor substitution, which is equal to the price ratio
these factors. (168)
STACKELBERGER EQUILIBRIUM (Stackelberg equilibrium)
Describes a duopoly with unequal market distribution
power between firms, so that one of them behaves like
leader (either in price, or in terms of volume, or both)
to another at the same time), while the other implements the strategy
adaptations, adjusting their behavior depending on
from the choice made by the first firm. (253)
EQUILIBRIUM PRICE (equilibrium price) - price balancing
supply and demand as a result of competitive
RISK DISTRIBUTION (risk spreading) - this is a method when
in which the risk of probable damage is divided between the participants in such a way
in such a way that the possible losses of each are relatively small.
Brief dictionary of economic terms 549
RATIONAL IGNORANCE (rational ignorance) - situation,
when voters do not see the benefits of participating in politics
process. (457)
REAL WAGES (real wage rate) - purchasing
wage capacity expressed in quantity
goods and services that can be purchased with the amount received.
REAL INTEREST RATE (real rate of interest) -
interest rate adjusted for inflation, i.e. expressed
at constant prices. (328)
ECONOMIC RESOURCES (economic resources), FACTORS
PRODUCTION- necessary for the production of economic
good elements. The main types of resources are:
labor, land, capital, entrepreneurial abilities. Often to
information is also added to it. (46)
RISK ASSETS (risk assets) - assets, income from which
partly depends on the case. (401)
ROWLESIAN APPROACH (Rawls" view) - special variety
egalitarianism, developed in the works of a modern philosopher
J. Rawls. According to Rawls, the utility of the least should be maximized.
wealthy members of society. (364)
MARKET (market) - a system of relationships in which customer connections
and sellers are so free that prices for the same
goods tend to clear out quickly. (80)
MARKET ECONOMY (market economy) - system based
on private property, freedom of choice and competition,
relies on personal interests, limits the role of government. (60)
SYNTHESIS (from Greek "connection") - a method consisting
in connecting parts into a whole. (17)
RISK TAKER (risk preference) - the man, who
for a given expected return will prefer the risk associated
result guaranteed result. (391)
MIXED ECONOMY (mixed economy) - type of society,
synthesizing elements of market and command economies, in
in which the market mechanism is complemented by the active activities of the state.
PERFECT COMPETITION (perfect competition) -
market structure characterized by the following features:
1) a large number of sellers and buyers of goods; 2) uniformity
products; 3) absolute mobility of resource movement,
absence of barriers to entry into and exit from the industry, 4) neither
one economic agent does not have power over prices; 5) full
awareness of participants about prices and production conditions.
TOTAL INCOME, REVENUE (total revenue, TR) -
the amount of income a firm receives from selling a certain quantity
550 Brief dictionary of economic terms
where TR (total revenue) is total income;
P (price) - price;
Q (quantity) - torn quantity. (193)
TOTAL PRODUCT (total product, TR) -
factor of production - the volume of goods produced attributable to
for a certain amount of a given factor. (159)
AGGREGATE DEMAND(aggregate demand)- the sum of individual
market demand at each price. (85)
SPECULATIVE DEMAND(speculative demand)- demand,
arising in a society with high inflation expectations,
when the threat of future price increases stimulates additional
consumption (purchase) of goods in the present. (126)
SPECULATION(speculation)- activity expressed
in purchasing for the purpose of resale at a higher price. (398)
SPECIFIC RESOURCES(specific resources)- resources,
whose value inside the company is higher than outside it. (185)
COMPARISON- a method that determines similarities and differences
phenomena and processes. (18)
AVERAGE COSTS (average costs, AC)- costs for
unit of product release. (198)
AVERAGE INCOME(average revenue, AR)- income attributable
per unit of good sold. Under conditions of perfect competition
average income equals market price:
AR = = -= P. (193)
AVERAGE PRODUCT(average product, AR)FACTORS OF PRODUCTION
Volume of goods produced per unit
factor used. (159)
PAYBACK PERIOD OF INVESTMENT PROJECT-
investment efficiency indicator. Equal to the minimum number
periods required for the current value of the flows
net income equaled the amount of investment (net current
the value of the investment project has become zero). How
the lower the payback period, the higher the efficiency of the investment
project. (321)
LOAN INTEREST(interest) - price paid to owners
capital for the use of borrowed funds during
certain period. (319)
|
Quantity |
Total product of labor in physical units (Q) |
Marginal product of labor in physical units (MP L) |
Marginal product of labor in monetary units, (MP L P) |
Total costs (TC), rub. |
Marginal costs |
|
(13-9)/(3-2)= 4 | |||||
|
(16-13)/(4-3)= 3 |
3∙100=300 | ||||
|
(18-16)/(5-4)= 2 | |||||
|
(19-18)/(6-5)= 1 |
The company will hire 4 workers. Let's justify our decision.
Using 3 workers will give an increase in profit of 400 – 300 = 100 rubles. In the case of hiring 4 workers, the marginal product in monetary form of the 4th worker (300 rubles) exactly corresponds to the amount of his earnings, i.e. MRP L = M.R.C. L . Hiring a 5th is unprofitable, because... the marginal product in cash is 200 rubles, and the marginal cost associated with hiring the 5th worker is 300 rubles (the fifth worker will have to pay 300 rubles), in this case the company will incur losses in the amount of 300 - 200 = 100 rubles. Therefore, if MRP > M.R.C., then the company, in order to maximize profits, should increase the amount of the variable factor, and vice versa.
And only in case MRP = M.R.C.– the company will receive maximum profit.
For example, consider the equilibrium situation of a firm with a demand for labor under conditions of perfect competition (Fig. 8.3).
Rice. 8.3. Equilibrium in the labor market
A company, hiring an additional worker, compares the amount of revenue from the use of his labor with the costs of hiring an additional worker ( w). Negative slope MRP L is associated with the action of the law of diminishing marginal productivity of a factor, its location is determined by the level of marginal productivity of the factor ( MR L) and the price of manufactured products ( R). Dot E– the firm’s equilibrium point in the factor market, because exactly in it MRP L =w e. This means that at the wage level (w e), the firm should hire L e workers. Thus, IfMRP L = w e optimal level of employment is ensured.
With a number of workers less than Le, When MRP L > w e, the firm should increase the number of workers. When the number of workers is greater than Le, When MRP L < w e, the company should reduce their number.
Any firm that operates using two variable, partially substitutable factors is faced with the problem of choosing a combination of inputs for each given level of production, and it seeks to minimize costs for each given level of production.
To identify all possible combinations of factors when producing a given volume of output, we will construct an isoquant and an isocost.
Isoquant is a curve, any point on which shows different combinations of two variable factors that provide the same volume of output (Fig. 8.4).
All possible technologically efficient combinations of two factors corresponding to a certain volume of production are on the curve. For example, the output of 90 units of output (Table 12.1) can be obtained with the following combinations of labor and capital: 3 units. TO and 4 units. L; 4 units TO and 2 units. L. All combinations will be on an isoquant with a volume of 90 units. But if a less efficient technology is used, then the use of 3 units. TO and 4 units. L will give a production volume equal to, for example, 85 units. products.
Other combinations of two factors, for example, 6 units. TO and 4 units. L; 2 units TO and 6 units . L, will give a production output equal to 106 units. products, and will be on an isoquant with the corresponding volume of output located above this curve (Fig. 8.5).
Isoquants never intersect. Each isoquant corresponds to a certain volume of output; the further the isoquant is from the origin, the greater the volume of output it will provide.
An isoquant is a graphical form of expressing a production function. Therefore, it has the same characteristics as the production function:
1) the isoquant shows the maximum volume of output for each individual combination of factors;
2) isoquants are concave and become flatter as you move from top to bottom along them. As you move down along the isoquant, more and more units of labor are required to replace each unit of capital, resulting in the marginal productivity of labor decreasing and the marginal productivity of capital increasing;
3) isoquants have a negative slope, since in order to keep the volume of output unchanged while reducing the use of one factor, it is necessary to increase the use of another.
For example, a change in capital to a change in the amount of labor will look like this:
MRTS KL = - K/ L.
By reducing the use of one factor, such as capital ( K), the firm reduces its output by Q = MP K ·(- K). But in order to remain on the same isoquant, the reduction in the volume of capital employed must be compensated by an increase in labor employed ( L) on Q = MP L · L.
Therefore, in order for output to remain unchanged, the equality must be satisfied:
MP L · L+MP K · K=0
or MP L · L= MP K ·(- K).
It follows that,
MP L / MP K = - K / L = MRTS KL .
Thus, the marginal rate of technological substitution of production factors is equal to the inverse ratio of their marginal products (productivities).
As you move down the curve MRTS KL decreases (therefore the curve has a convex shape towards the origin). This is explained by the fact that as capital is replaced by labor (reduction of factor TO and increasing the amount of factor L) marginal product of capital ( MR TO) increases, and the marginal product of labor ( MR L) decreases (the numerator decreases and the denominator increases). Consequently, the marginal rate of technological substitution of capital by labor decreases. And vice versa.
On the other hand, equality MP L / MP K = - K / L says that at any point of the isoquant the marginal rate of substitution of one resource for another is equal to the slope of the tangent to the point lying on the isoquant . MRTS KL- slope of the isoquant.
Isoquants have different forms depending on the degree of interchangeability of resources (Fig. 8.6).
a) Absolutely b) Complementary c) Partially
interchangeable (mutually complementary) interchangeable
Rice. 8.6. Isoquant forms
Isoquants in the form of straight lines (Fig. 8.6 a) characterize the ideal interchangeability of factors, that is, one factor can be completely replaced by another. In this case, production can be carried out even with the help of one factor. For example, the sale of drinks can be carried out by sellers, or by vending machines. In this case, the marginal rate of technological substitution is constant at all points of the isoquant ( MRTS KL = cons’ t). Then The production function has the form:
Q= α ∙K+β ∙ L.
Isoquants in the form of a right angle (Fig. 8.6 b) reflect the patterns of production with fixed proportions of factors. In this case, the production technology is such that the factors used complement each other and substitution between them is impossible ( MRTS KL =0 ). In order to carry out the production process, both factors must be used in the same strictly defined proportion, for example, 1 car and 2 drivers (1 unit). TO and 2 units. L). A prerequisite for the transition to a new isoquant is not only an increase in two factors, but also compliance with a given proportion in the use of resources. If there is an increase in one factor without changing the other, then the transition is impossible. For example, a combination of 3 cars and 2 drivers is economically meaningless, as well as a combination of 1 car and 6 drivers. A transition to a higher isoquant in this case is possible with a combination of 3 cars and 6 drivers.
In this case of complementary factors, the production function has the form (input-output formula or V.V. Leontiev formula):
Q= f(K, L) = min{ α TO,βL} .
This means that the output volume will be equal to the minimum of the values that will be obtained by substituting the quantitative values of variable factors into the function.
Let's say α=3, β= 2, TO=1, L=2, then the output volume will be equal to 3, since Q= min(3(1),2(2)). Then the volume will be equal to 3 and 4.
In the case of partially interchangeable factors (Fig. 8.6 c), production can be carried out with the mandatory use of two factors. Their combinations can be different depending on the given production function (Cobb-Douglas formula):
Q=A∙K α ∙ L β .
A firm operating using two variable factors is faced with the problem of optimally choosing a combination of resources for each given volume of output. A profit maximizing firm will seek to select the combination of inputs that is the cheapest. Thus, the task comes down to minimizing the firm's costs for each given volume of production.
Just as the same level of output can be obtained with different combinations of factors, different combinations of factors can give the same level of costs. A line reflecting different combinations of factors of production that give equal total costs is calledisocost (Fig. 8.7).
Let's graphically depict the total costs:
TS = R TO ∙К+Р L ∙ L,
Where TS– total costs equal to the sum of constants and variables; R TO– price per unit of capital; TO- amount of capital; R L- labor unit price; L – amount of labor.
Rice. 8.7. Isocosta
The isocost is constructed as follows. If we assume that everything is spent only on the acquisition of capital, then it is possible to acquire the maximum TS/R TO units If everything is spent only on acquiring labor, then we can acquire the maximum TS/R L units By connecting these boundary points, we obtain an isocost (Fig. 8.7).
Any point on the isocost shows a combination of two factors at which the total costs (total costs) for their acquisition are equal. Isocost is described by the equation:
TC= P TO ∙К+Р L ∙ L,
.
The slope angle of the isocost is equal to the maximum rate of technological substitution:
.
Thus, the slope of the isocost is equal to the ratio of the prices of the factors used multiplied by (-1). If a firm increases the quantity of one factor, it must reduce the use of another. In order to keep the total costs of purchasing factors unchanged, the following condition must be met:
- K / L = P L / P K .
Because the, An isocost line is both an equal cost line and a firm's budget constraint line., then the equation can look like:
B= P TO ∙К+Р L ∙ L,
Where IN– the company’s budget intended for the purchase of factors; R TO– price per unit of capital; TO - amount of capital; R L – labor unit price; L– amount of labor.
For example, the company's budget intended for the purchase of factors is 1000 rubles, and the price of 1 unit of capital is 500 rubles, and a unit of labor is 250 rubles. In this case, the firm can purchase 2 units of capital or 4 units of labor (Figure 8.8).
A change in the budget value causes the isocost to shift to the left (decreased) or to the right (increased) (Fig. 8.9 a). A change in the price of production factors leads to a change in the slope of the isocost (Fig. 8.9 b). But there may be cases of simultaneous changes in both the budget and prices for production factors.
The entrepreneur's task is to choose a combination of factors that ensures the production of the required quantity of products at the lowest cost. The optimal ratio of factors will be when the combination of these resources lies on the isocost, and the slope of the isocost is equal to the slope of the isoquant, i.e.
.
This equality suggests that minimum costs are achieved when the cost of an additional unit of output does not change from the use of any additional factors.
To determine the optimal combination, we will superimpose the isoquant map on the isocost (Fig. 8.10). Isocost with budget constraints IN 1 (or costs WITH 1 ) does not allow achieving the required output, since it does not have a point of tangency with the isoquant. We see the intersection of isocosts with isoquants at the points A, IN And D. Points IN And D indicate excessively high costs ( IN 3 ) to achieve a given output volume Q. Dot A is optimal, since it is this combination of factors that allows the production of volume Q at lower costs ( IN 2 ).
In order to increase or decrease production volumes, a company must change the ratio of factors until the rate of substitution of factors is limited ( MRTS KL) will not be equal to the slope of the isocost ( P L /P K). This leads to the following conclusions:
1) a production factor is applied until its marginal productivity, expressed in monetary units, becomes equal to its market price, which is the limiting limit of the factor’s use;
2) the optimal combination of factors is achieved when the ratio of the marginal productivity of factors is equal to the ratio of their market prices;
3) the ratio of prices and marginal productivity of production factors determines the demand for each of them.
In the short run, if the price of a factor rises, the firm will reduce its use and increase the use of a cheaper one. However, a change in the use of factors of production leads to a change in production costs. And any restriction on the use of any factor will lead to increased costs and will not allow the company to achieve the optimal combination of factors. However, in the long run, the firm has greater opportunities to combine factors for each given volume of production, since costs in the long run are lower than costs in the short run.
Having determined the optimal ratio of factors for volume Q, you can do the same for volumes Q 1 , Q 2 etc. As a result, we obtain a certain map of optimal production options from a cost point of view (Fig. 8.11). Combination of factors at a point A will give the lowest costs for volume Q 1 , at the point IN with volume Q 2 , at the point WITH with volume Q 3 . By connecting all the optimum points for various production volumes ( A, IN, WITH) we obtain a curve called growth trajectory.
When making decisions to change production volumes, the firm will move along this curve.
The direction of the trajectory depends on the ratio of factor prices and their marginal productivity. For most producers, the most likely shift is towards capital due to the transition to more capital-intensive technologies (Fig. 8.12 a). If technology requires a constant ratio of factors, then a linear development trajectory will be observed (Fig. 8.12 b). If in rare cases the use of a large amount of labor is required, then a downward development trajectory occurs (Fig. 8.12 c).
As mentioned above, at the point of tangency, the slopes of the isoquant and isocost are equal. The slope of the isocost is P L /P K, and isoquants – MRTS KL . .
MRTS KL = MP L / MP K = - K / L,
but - K/L = P L / P K . Then MP L / MP K = P L /P K, that is:
-cost minimization rule.
a) Capital-intensive b) Mixed c) Labor-intensive
Rice. 8.12. Various forms of technology development trajectories
From the point of view of rational economic behavior, this means that a more expensive factor of production is replaced by a cheaper one. For example, capital is more expensive than labor ( MP L / P L MP K / P K), then the firm minimizes costs by replacing capital with labor. If labor is more expensive than capital ( MP L / P L MP K / P K), then labor is replaced by capital.
Let's illustrate this with a simple example. Let the company use 4 units. labor and 9 units. capital. Labor price ( P L) = 100 rubles, price of capital ( P K) = 100 rub. Marginal product of the 4th unit. labor ( MP L) = 12, and the 9th unit. capital MP K = 6.
According to the cost minimization rule, the equality must be satisfied:
MP L / P L = MP K / P K .
In our case, 12/100 6/100, 0.12 0.06.
This is not equal. Consequently, this combination is not optimal, since the last ruble spent on the acquisition of an additional unit of labor gives an increase in output of 0.12 units, and the last ruble spent on the acquisition of an additional unit of capital gives an increase in output of only 0.06 units. In this situation, the firm should replace a relatively expensive factor (capital) with a relatively cheap factor (labor), that is, increase the amount of labor and reduce the amount of capital. This substitution is carried out until the ratios of marginal product to price for the two factors are equal. For example, for the 6th unit. labor and 7th unit. capital marginal products will be equal to ( MP L =10, MP K = 10).
Then 10/100 = 10/100 - in this case the company minimizes costs.
Minimizing costs is a necessary but not sufficient condition for maximizing profits. The difference between minimizing costs and maximizing profits is as follows. When achieving the optimal combination of factors for any volume of output, factor prices and their marginal productivity are accepted. When formulating the conditions for maximizing profit, the marginal product of the factor in monetary terms is also taken into account, reflecting the demand for products produced with their help. This is due to the derived nature of demand for factors.
The firm's profit is maximized if MRP L = M.R.C. L .
In conditions of perfect competition, this rule is formulated as follows: profit maximization is achieved when the marginal product of a factor in monetary terms is equal to its price. If a firm uses two variable factors - labor and capital, then profit maximization will be ensured at such a volume of production when MRP L = P L And MRP K = P K ,
or MP L / P L= 1 and MP K / P K = 1.
11.3. Maximizing profit when using an economic resource
Let's consider a certain company "Orion", producing product X using resource A. As has been established, operating in any market structure, the company maximizes profit by producing a volume of products at which the marginal revenue it receives equals marginal costs: MC = MR. Since Orion produces product X using resource A, it is logical to believe that the firm will hire this resource until the marginal revenue received by adding an additional unit of resource equals the marginal cost associated with hiring this unit of resource . Let us pay attention to the following: the categories of marginal revenue (MR) and marginal costs (MC) were defined as changes, respectively, in total revenue (TR) and total costs (TC) associated with the release and sale of an additional unit of goods. Since we are interested in the change in TR and TC associated with hiring an additional unit of resource, it is necessary to introduce two new terms:
marginal product in monetary terms (MRP)– change in the total revenue of firms due to the sale of units of goods produced using an additional unit of resource:
marginal resource cost (MRC)– change in total production costs associated with attracting an additional unit of resource:
It can be proven that the condition for maximizing profit by a firm is to use such an amount of resource that the following condition is satisfied:
If the firm is unable to influence resource prices, i.e. buys resources on a perfectly competitive factor market, then the MRC values will be the same for all hired resource units and will be the price of a resource unit P a . Profit maximization in this case is achieved if P a = MRP.
This means that at any price of the resource P a the company can determine the amount of the resource used, i.e. QD of the resource under which the condition is met: P a = MRP. Then the firm can find a correspondence between the price of the resource P and QD of the resource or determine the demand for the resource. The demand curve for a resource is the MRP curve, and the supply curve is the MRC curve.
In the long run, when all resources are variable, by producing any volume of output using several resources, say A and B (for example, labor and capital), the firm can minimize costs per unit of output if the condition is met
where MPC and MPL are the marginal products of capital and labor;
PC and PL are unit prices of capital and labor.
Equality (8) allows us to find the ratio of resources that provide the company with minimum costs for a given volume of output, but it does not guarantee that in this case the company receives the maximum possible profit. It was proven above that using one resource, say A, the company maximizes profit with the value of the marginal product in monetary terms equal to the marginal cost of the resource:
Using only two resources, for example, labor and capital, the firm maximizes profit when this rule is satisfied for each resource, i.e. MRP L =MRC L And MRP C = MRC C . Then, in generalized form, the condition for maximizing profit when using two resources can be represented as:
If the firm is not able to influence the prices of resources, then MRC is equal to the price of the resource and equality (9) takes the form:
Note that, in contrast to equality (8), where a proportional relationship between MP and P is assumed (i.e., a firm can minimize costs if MP L / P L = MP C / P C = 3), the profit maximization condition means that the MRP value of the resource is equal to the marginal cost of the resource (resource price) and MRP L / P L =MRP C / P C = 1.
(Materials are based on: V.F. Maksimova, L.V. Goryainova. Microeconomics. Educational and methodological complex. - M.: Publishing center of the EAOI, 2008. ISBN 978-5-374-00064-1)
Resources- this is the totality of all material goods and services used by a person to produce the products he needs
Conventionally, resources are divided into:
- Free (available in unlimited quantities, i.e. there are zero of them)
- Economic (quantity is limited, but the price is non-zero)
The limitation of economic resources is not absolute, but relative. It lies in the fundamental impossibility simultaneous and complete satisfying all the needs of all members of society.
The task of economic theory is the optimal allocation and use of resources.
Economic resources is a set of various elements of production that can be used in the process of creating material and spiritual goods and services. Economic resources are divided into material resources: raw materials and capital, and human resources: labor and entrepreneurial ability. All these resources are factors of production.
Economic resources (factors of production) include four groups:
(Earth)
- Earth
- minerals
- water resources
Natural factor production reflects the influence of natural conditions on the use in production of natural sources of raw materials and energy, minerals, land and water resources, air, natural flora and fauna. The natural environment as a factor of production embodies the possibility of involving certain types and volumes of natural resources in production, converted into raw material from which the entire variety of material and material products of production is made.
Despite all the importance and significance of the natural factor in relation to production, it acts as a more passive factor than and. The whole point is that natural resources, being mainly raw materials, undergo transformation into materials and then into the main means of production, which already act as active, creative factors. Therefore, in a number of factor models, the natural factor as such often does not appear explicitly, which does not in any way reduce its significance for.
Investment resources ()
- building
- structures
- equipment
Financial capital, namely stocks, bonds, money, does not belong to economic resources, because not related to actual production.
The factor “capital” represents the means of production involved in production and directly involved in it.
Capital as a production factor can appear in different types, forms and be measured in different ways. Physical capital is presented in the form of (the main means of production), but it is legitimate to attach to it and (), which also plays the role of a factor of production as the most important material resource and source of production activity.
Entrepreneurial talent
Entrepreneurial ability— ability to organize production, make decisions on business management; be an innovator.
An entrepreneur performs four important functions:- Takes the initiative to rationally combine resources into a single process for the production of goods and services
- Performs the task of making basic business decisions
- He is an innovator, that is, he introduces new products, production technologies and forms of business organization into use on a commercial basis.
- Risks not only his time and business reputation, but also his invested funds
In a market economy, economic resources bring income to their owners in the form of rent (land) and (capital). The income of those who offer their labor is called, and entrepreneurial income is called.
Let's name another significant production factor. Generally it is called scientific and technical level of production. In its economic essence, the scientific and technical (technical and technological) level expresses the degree of technical and technological perfection of production.
Market of economic resources in social reproduction
Until now, the main focus has been on the market for finished products and the behavior of firms producing these products in various market structures.
Meanwhile, to produce any type of good or service, a firm needs to acquire economic resources that are directly or indirectly owned by households. The study of the specific features of demand, supply and pricing in the factor market plays an important role in understanding the processes occurring in the economy.
The importance of the factor market is due to the fact that:
- firstly, prices existing in the resource market determine the level of economic costs of all operating enterprises, which in turn determines the amount of market supply in the finished product market;
- secondly, prices for production factors are the most important factor in the formation of household cash income (in the form of wages, rent, interest and profit), which determine market demand for finished products;
- thirdly, the normal functioning of the market for factors of production contributes to the efficient distribution of economic resources between economic entities, and thereby minimizes the opportunity costs of producing a particular type of finished product.
Unlike the market for finished products, where households present demand and firms form supply, in the resource market the functional roles of economic entities change radically. Now households offer the economic resources at their disposal and become subjects of supply, and firms purchase the production resources they need and act as subjects of demand.
Let us consider in more detail the features of the formation of supply and demand in the factor of production market.
Demand and production in the resource market
Derivative nature of demand for resources
The demand for economic resources is presented by manufacturing firms.
Quantity of demand for economic resources determined by the amount of resources that firms are willing to purchase at existing prices, in a given place, at a given time.
Unlike the demand for finished products, the demand for resources is derivative in nature, since it directly depends not only on the price of the resource, but also on the demand and prices for the finished products manufactured by the company using this resource.
Short-term demand analysis
To analyze the demand for resources, we will make several simplifying assumptions:- the company operates in the short term;
- uses only two resources: (L) and capital (K), with labor being a variable factor and capital being a constant;
- the resource market is perfectly competitive;
- The market for finished products is also completely competitive.
Let us present the production function of the analyzed company in the form of a table.
As can be seen from the table, by increasing the number of employed labor (L), the firm achieves an increase in output (Q), however, due to the law of diminishing returns, the marginal product of labor (MPL) is gradually decreasing. The main question that a company must decide for itself is how much labor should be hired under given conditions.
Marginal product in monetary terms
It is obvious that each additional employee brings the company both additional income and additional costs.
To estimate the marginal profitability of labor, the indicator of the marginal product of labor in monetary terms (MRPL) is used.
Marginal product of labor in monetary terms reflects the increase in the firm's total income as a result of the use of one additional unit of labor (column 5), and is calculated using the formula
MRPL= ΔTR/ΔL or MRPL=dTR/dL.
If the marginal product of labor in physical terms (MPL) and the market price of manufactured products are known (note that in perfect competition the price does not depend on the volume of output and is equal to marginal income), then the marginal product of labor in monetary terms can be estimated through the product of MPL and MR :
MRPL=dTR/dL=d(QPx)/dL=Px(dQ/dL)=Px*MPL, and since Px=MR, That МRPL=MPL*MR.
This equality holds for any competitive resource market, regardless of the structure of the finished product market.
The firm's marginal cost due to the use of one additional unit of labor (MRC), in conditions of perfect competition in the labor market, corresponds to the price of a unit of labor, i.e. wages (W).
Conditions for optimal hiring (in the case of one variable resource)
Hiring an additional worker is justified until the marginal profitability of labor equals its marginal costs, i.e. profit growth due to changes in variable resources will no longer be possible (ΔΠ=0)
Let's prove this statement.
Let the production function of product X be given by the equation: Qx=f(L), Where Qx— volume of product output X; L— number of units of variable resource (labor).
Then the marginal product of labor is: MPL=dQx/dL=f`(L).
A firm's profit, by definition, is equal to the difference between total income and total income, or:
n=TR-TC.
Total income:
TR=PxQx.
Total costs:
TC=FC+VC,
but since variable costs:
Where w is the price of a unit of variable resource (labor), then:
TC=FC+wL.
Let us substitute the resulting expressions for total income and total costs into the profit function, replace Qx with f(L) and obtain:
p=TR-TC=PxQx-(FC+wL)=Pxf(L)-(FC+wL).
The profit maximization condition presupposes the impossibility of increasing profit at the optimum point, i.e. requires the derivative of the profit function with respect to the variable resource to be equal to zero
dп/dL=0.
Let's calculate the derivative with respect to L and get: dп/dL=Pxf`(L)-w=0, or Pxf`(L)=w.
Because by definition f`(L) is the marginal product of labor ( MPL), and the product Px on MPL equal to the marginal product of labor in monetary terms ( MRPL), then the condition for optimal hiring (or profit maximization) takes the form: MRPL=w, which was what needed to be proven.
The equality MRPL=W reflects optimal hiring condition production resource, and fig. 8.1 gives a graphical representation of the optimum condition.
8.1 Optimal hiring condition
In the example under consideration, the optimal number of labor units is L*=7. This means that the use of 7 units of labor in the enterprise allows maximize firm profits.
The economic meaning of the MRPL curve is that it shows how much amount of resource the firm is willing to use, maximizing profit at a given resource price level, and this is nothing more than a determination of demand.
In other words, the MRPL curve reflects the demand for the resource being used.
If the market price of labor decreases from W* to W2, then the optimal number of units of labor will increase to L2, and on the contrary, if the price of labor (wages) increases to W1, then the amount of labor used will decrease to L1 (Fig. 8.2).
8.2 Dependence of optimal hiring on wages
Conditions for optimal hiring in the long run (the case of several variable resources)
When a firm deals with several variable inputs, the selection problem becomes more complex because changes in the price of one input can change the demand for other inputs. However, in general the optimum condition remains the same.
Profit maximizing firm must use each resource to the extent that its marginal return (MRP) would equal the cost of using an additional unit of it (P), or:
- MRP1=P1,
- MRP2=P2,
- MRPn=Pn,
where 1,2,...n are indices of the corresponding resources.
This condition can be transformed into equality:
Maximizing profits while minimizing costs
When analyzing the prerequisites for efficient production in the long term (the topic "Production, technology, production function"), a condition was determined under which the company achieves cost minimization for a given output volume.
In the case of n number of resources, it (the minimization condition) is written as an equation:
where MPi is the marginal product of resource i
Pi is the price of resource i (for i=1.2…n).
This expression means that a company seeking to minimize its costs must distribute its budget funds in such a way as to obtain the same surplus product per ruble spent on the acquisition of each resource.
Graphically, the optimal combination of resources (K*,L*) lies at the point of tangency between the isocost and isoquant lines. (Fig. 8.3)
8.3 Combination of resources that minimizes firm costs
If we transform the above equality by multiplying the numerator (MR) by the price of the manufactured product (Px), we obtain an equality of the form:
In this form, the expression means that an enterprise that minimizes its costs must distribute its costs in such a way as to obtain the same surplus product in monetary terms per ruble spent on the acquisition of each resource.
The condition for minimizing costs is derived from the condition for maximizing profits. Determining a technologically efficient combination of resources does not guarantee the firm maximum profit. On the contrary, if the firm is at the optimum point and receives maximum profit, this already implies a minimum level of costs.
Demand for resources and factors determining it
Price and non-price determinants of demand
Among the most important factors determining the demand for the resource used by the company are the following:
1. Demand for finished products produced using this resource.Obviously, the higher the demand for a product, the more the firm is interested in its production, and the more resources it needs to produce it. Conversely, the demand for a resource used to produce products that no one needs will be close to zero.
2. Resource performance.The productivity of a resource can be assessed through its marginal product. If the resource used is highly productive, then, other things being equal, the demand for it will be greater than for a resource with low productivity.
3. Price for the resource.All other things being equal (and, above all, with constant prices for substitute resources), a reduction in the price of a resource in accordance with the law of demand can cause an increase in the amount of demand for the resource, and an increase in its price can cause a reduction in the amount of demand.
4. The value of the firm's marginal revenue (MR).With all other characteristics of the resource used unchanged, the higher the firm’s marginal revenue (MR), the higher the marginal product of the resource in monetary terms (MRPi=MR*MPi), in other words, the profitability of the resource used, and, therefore, the higher the firm’s demand will be for this resource.
5. Prices for other resources.Unlike the market for finished goods, changes in the prices of other inputs can cause two opposite effects: the substitution effect and the output effect. The degree of influence of these effects depends on whether the analyzed resources belong to the group of substitute, complementary or neutral factors of production:
- neutral resources have an extremely low, close to zero impact on the market of the main factor;
- substitute resources satisfy similar demands of the manufacturing company, and therefore are competitors for the main factor;
- complementary resources are used in production together with the main factor in proportions determined by the technological process.
Let us abstract from the first group of resources and analyze the impact on producer demand of changes in prices for complementary and substitute resources.
Let us assume that labor and capital are considered resource substitutes.
If for some reason the price of labor increases, this may cause the manufacturer to seek to replace a more expensive resource with a relatively cheaper one. Thus, the substitution effect will increase the demand for capital.
At the same time, an increase in labor prices can cause a corresponding increase in total (TC) and, as a consequence, a reduction in the supply of finished products and a decrease in demand for all used resources. In this case, the output effect will reduce the demand for capital.
The actual impact of price changes on labor, on demand, on capital will depend on the relationship between the effects considered.
If labor and capital are complementary and are used in strictly fixed proportions, then the substitution effect will be zero. In this case, the capital market will be affected solely by the output volume effect, i.e. rising labor prices will reduce the demand for capital.
Elasticity of demand for a resource
For a resource at price shows the degree of quantitative change in the quantity of demand for a resource when the price changes by 1%.
Elasticity is calculated using standard formulas:
arc elasticity:
where P1, P2 are the initial and subsequent prices;
Q1,Q2 - initial and subsequent quantities of demand.
point elasticity:
- where Q`(P) is the derivative of the demand function with respect to price;
- P - market price;
- Q(P) is the quantity demanded at a given price.
Factors determining the elasticity of demand:
1. Availability and availability of substitute resources on the market.
If a resource has many good substitutes, then the elasticity of demand for it will be high, since an increase in price will force the producer to sharply reduce demand and use alternative factors of production. Conversely, if a resource has no serious substitutes, then the demand for it will be relatively stable.
2. The share of costs for a given resource in the total costs of the company.
All other things being equal, the smaller the share of total costs attributable to the resource in question, the lower the elasticity of the firm's demand for it.
3. Analyzed time period.
Other things being equal, the shorter the period of time we consider, the less elastic the demand for resources. Obviously, in the short term it is more difficult for a manufacturer to adapt to rising prices and find the necessary substitute resources.
4. for a product manufactured using this resource.
A decrease in the price of products characterized by elastic demand leads to an increase in sales volume, and as a consequence, to an increase in demand for resources. Therefore, other things being equal, the higher the elasticity of demand for a product, the higher the elasticity of demand for the resource used in its production.
The market for factors (resources) of production is an important element of a market economy, on the effective operation of which the sustainable and stable development of the entire economic system depends.
Resources involved in the production of goods and services are called factors of production.
There are four groups of factors of production: human resources, natural resources, capital and entrepreneurship.
Human resources(labor – L) is a person’s ability to engage in mental and physical activity aimed at obtaining material goods and services. The price paid for labor is called wages(W).
Natural resources(Z) – natural goods that are used to create goods and services (otherwise – land). The price for using a natural resource is called rent(R). Rent is the income of the land owner.
Capital(K) – production resources created by people (machines, machines, equipment, buildings, structures) intended to create a product and increase labor productivity. Capital can be physical (real) and monetary. Capital invested in a person is called human capital. The payment for the use of physical or monetary capital is the loan interest (r). Loan interest– there is a return on capital.
Entrepreneurship is a set of labor efforts associated with the leadership, management and organization of the production of goods and services. The goal of entrepreneurship is to combine all factors of production most efficiently. As a result of his activities, the entrepreneur receives entrepreneurial profit (P). An entrepreneur's profit is the reward for innovation and risk. Business profits are generated after wages, rent, interest and taxes have been paid.
All types of factors and the income generated from them can be represented in the form of a diagram.
Demand for resources is the number of factors of production necessary to create material wealth, expressed in monetary terms.
In market conditions, the size and structure of demand for factors of production is formed by the company based on the condition of profit maximization. This means that the firm buys exactly enough factors of production to create a product that will bring maximum profit.
Features of the demand for resources are as follows.
1. The demand for resources is secondary(derivative) and depends on the demand for products that are made from a given resource (the greater the demand for finished products, the greater the demand for the resource).
2. The demand for resources depends on the marginal cost of the resource ( MS). The value of the marginal cost of a resource depends on the type of market (competitive or monopoly).
On competitive In the market, the optimal amount of resources is determined by equality (f. 26).
MS= MR(26)
If MR>MS, then the firm increases its purchases of resources. If MR<MS, then the demand for factors falls. Therefore, the conditions for profit maximization are satisfied if marginal cost equals marginal revenue.
Equality (f. 26) is called the golden rule and determines the most favorable business conditions for a company, since it is true for any market of production factors.
On monopoly In the market, the firm reduces its production volume, and therefore its demand for resources decreases. A monopoly firm seeks to reduce its output and increase its market price.
3. Changes in demand for resources depend on the dynamics of demand for other resources, i.e., on the availability of interchangeable and complementary resources. In this case they apply substitution effect And volume effect.
The effect of the replacement effect and the volume effect is opposite in direction.
Demand for resources increases if:
Demand for the final product increases;
Labor productivity increases;
The price of substitute resources falls;
The price of complementary resources decreases.
4. Demand for resources price elastic. The elasticity of demand is determined by the share of resources in total costs: the greater the share of resources in costs, the more elastic the demand. With a high share of resources in production costs and a continuous rise in prices for them, a drop in demand for these resources may occur.
Thus, the demand for resources is an important condition for determining their price and share in production costs.
Suggestion of factors production depends on the type of resource market: labor, land, capital. Depending on the characteristics of each of the listed types, a factor proposal is formed.
What all markets have in common is that the amount of resources offered for sale is limited compared to the production needs.
For a manufacturing company, the price of a resource is of great importance, as it determines the level of production costs. In turn, prices depend on the amount of resources that are presented on the market.
Thus, the supply and demand of factors of production determine the market conditions for the effective functioning of the company.
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 ( MP). 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.
Marginal cost of a resource characterize the increase in production costs due to the acquisition of an additional unit of resource. Under conditions of perfect competition, this increase in costs equal to price resource.
Let us assume that a company with a given amount of capital ( C) can expand output ( TR), increasing the number of workers ( L) (Table 8.1).
Table 8.1
|
Number of workers (L ) |
Total product, units (TR ) |
Limit product, units (MR ) |
Product price, den. units (R ) |
Limit product in monetary expression, monetary units (MRP ) |
Least cost rule - this is a condition according to which costs are minimized in the case when the last ruble spent on each resource gives the same return (the same marginal product):
where MRP i is the marginal product of the i-th factor in monetary terms;
Р i is the price of the i-th factor.
This rule ensures the balance of the producer's position. When the returns of all factors are the same, the task of redistributing them disappears, because there are no longer resources that generate more income compared to others.
The marginal productivity of a resource is a measure of its contribution to the production of goods. This contribution depends not only on its properties, but also on the proportions that exist between it and other resources.
To what extent is this or that resource needed in production? What determines the extent of its use? First of all, the difference between the income it brings and the costs associated with its use. A rational producer seeks to maximize this difference.
Under perfect competition, the prices of goods and the prices of resources are given. From this we can conclude that the marginal productivity of any resource in monetary terms will have the same dynamics of change as the marginal productivity in physical terms, since to get the first, you need to multiply the second by a constant price. The resource will therefore find use in production until its marginal productivity in monetary terms is not lower than its price:
MRP 1 ≥ Р 1.
Profit maximization rule in competitive markets means that the marginal products of all factors of production in monetary terms are equal to their prices, or that each resource is used until its marginal product in monetary terms is equal to its price:
