Question

a. You are an Economics teacher. Please explain to your class the significance of resource pricing on resource allocation among:
   i.   Firms and industries,
   ii.   The determination of income,
   iii.   Include the impacts on the ability of a firm to achieve cost minimization.
   1.   Discuss how resource prices affect the ability of firms in an industry relative to their ability to acquire resources and the subsequent impact on output,
   2.   Discuss the impact of resource prices on the determination of income that results from the sale of those resources.
   3.   Discuss the impact of resources prices on the ability of firms to minimize costs.

Answer 1

a) Resources or factors of production are the most important determinants of the economic varibles of an economy . Hence resouce pricing plays a significant role in the functitioning of several economic units .

1) Firms and industries : They have a particular production function which is the quantity of output determined by a particular ratio of inputs . So prices of inputs change the cost of production . Hence costlier an input becomes lesser quantity of that input is allocated in production to reduce costs .

2) The determination of income : Households provide resources or factors of production and in return earn income . So resource pricing plays an important role in determining level of income . Also intensity of usage of a resource or allocation of resources determine relative returns to a resource .

3) impact of resources prices on the ability of firms to minimize costs. : Has it has been discussed already firm's cost minimization problem is minimization of total cost subjected to the production function . This gives us that the last dollar spent on each input must be equal . Or the ratio of marginal product must be equal to input price ratio in order to minimize costs .