What factors determine the elasticity of resource demand? What effect will each of the fol
What factors determine the elasticity of resource demand? What effect will each of the following have on the elasticity or the location of the demand for resource C, which is being used to produce commodity X? Where there is any uncertainty as to the outcome, specify the causes of that uncertainty.
a. An increase in the demand for product X.
b. An increase in the price of substitute resource D.
c. An increase in the number of resources substitutable for C in producing X.
d. A technological improvement in the capital equipment with which resource C is combined.
e. A fall in the price of complementary resource E.
f. A decline in the elasticity of demand for product X due to a decline in the competitiveness of product market X.
4. In each of the following four cases, MRPL and MRPC refer to the marginal revenue products of labor and capital, respectively, and PL and PC refer to their prices. Indicate in each case whether the conditions are consistent with maximum profits for the firm. If not, state which resource(s) should be used in larger amounts and which resource(s) should be used in smaller amounts.
a. MRPL = $8; PL = $4; MRPC = $8; PC = $4.
b. MRPL = $10; PL = $12; MRPC = $14; PC = $9.
c. MRPL = $6; PL = $6; MRPC = $12; PC = $12.
d. MRPL = $22; PL = $26; MRPC = $16; PC = $19.