Important Terms

Derived demand. The demand for productive resources which arises because resources are needed to produce final commodities that consumers demand.

Firm's demand schedule for a resource. The MRP schedule of the resource (when the firm is a perfect competitor in the resource market), reflecting the profit-maximization rule that the firm should continue to hire a resource until MRP equals the resource price.

Marginal physical product (MPP). The change in total product that results from employing one additional unit of a variable resource together with other fixed resources.

Marginal revenue product (MRP). A measurement of the change in the firm's total revenue from selling the extra or marginal physical product that results from employing one additional unit of a resource together with other fixed resources.

Perfectly competitive firm in the factor market. A firm that is too small to affect the price of the resource (factor) it purchases and can hire any quantity of the resource at the prevailing market price.

Perfectly competitive firm in the product market. A firm that is too small to affect the price of the product (commodity) it sells and can sell any quantity of the product at the prevailing market price.

Resource pricing. The manner in which wages for various kinds of labor, rents for various types of land and other natural resources, interests on capital assets, and profits on entrepreneurship are determined in a mixed economy such as that of the United States.

Total revenue (TR). The product price times the total product sold.

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