Lecture # 14

Principles of Microeconomics
ECO302

Recap of Previous Lecture

The Demand Curve of a Firm with One

Variable Resource
A firms demand curve for the services of a variable
resource indicates the various quantities demanded of it by
the firm at its different prices.
If additional units of the factor add more to the revenue of
the firm then they add to its cost, then its profit will go on
rising.
If additional units of the factor add more to the cost of the
firm then they add to its revenue, then its profit will go on
decreasing.

The Demand Curve of a Firm with One

Variable Resource (Continued)

MRPa = MPPa X MRx

Under Perfect Competition,

MRPa = MPPa X Px

The Demand Curve of a Firm with One

Variable Resource (Continued)
Units of
Factor A

MPPa

Px = MRx
(Rs.)

MRPa
(Rs.)

Pa = MRCa
(Rs.)

14

12

10

10

11

The Demand Curve of a Firm with One

Variable Resource (Continued)
MRCa = 14

12

MRCa = 12

10

MRCa = 10

MRCa = 8

MRCa = 6

MRCa = 4

MRCa = 2

Pa, MRCa ans MRPa

14

9
10
6
8
5
7
Quantity demanded of Variable factor A

11

The Demand Curve of a Firm with Several

Variable Resources

The Demand Curve of a Firm with Several

Variable Resources (Continued)
If an increase in the use of one factor of production lowers
the demand for the other, the two factors are Substitute
factors of production.
If an increase in the use of one factor of production
increases the demand for the other, the two factors are
Complementary factors of production.

The Market Demand Curve For a Variable

Resources
If all individual firms demand curve for a variable factor
are horizontally added up, then we can obtain the market
demand curve.

The Market Demand Curve For a Variable

Resources (Continued)
(a)

(b)

Pa

Pa

Price of Factor A

d1

d2

Da

Pa1

Pa1

MRCa1

MRCa2

Pa2

R
Pa2

Da

d2
d1

a1

a2

a1

Quantity of demanded factor A

a2

A1
Quantity demanded of factor A

A2

The Market Supply Curve of a Variable

Resources
The market supply curve of a variable factor shows the
various quantities of it offered for sale in the market at
different factor prices.

The Market Supply Curve of a Variable

Resources (Continued)

SummaryandConclusion