Question

In: Economics

What does it mean to say that resource demand is a derived demand? How does this concept become a part of the goal for profit maximization?

What does it mean to say that resource demand is a derived demand? How does this concept become a part of the goal for profit maximization? What is the basic rule for resource use to minimize costs?

Solutions

Expert Solution

The ultimate goal, of all companies that work today, is the ability of them to generate sufficient profits for themselves. For this, they must actively engage themselves in the production of goods and services. These goods and services can only be produced if the firms demand for raw materials.

Thus, resource demand refers to that part of the demand in any economy which is done directly by the producers of other goods. Thus, such demand is not final in nature and it takes the producers effort to convert them into final goods and services which can then be sold in the economy respectively.

Therefore, the demand for resources can be said to be derived from the actual demand which consumers tend to have. For example:-

The demand for raw materials which are used in production of cars for example industrial paint, nuts & bolts, tyre's etc ultimately depend on the demand for car themselves.

Thus the derived nature of resource demand is such, that these can be utilized by producers only when the demand for final products is stable. Any decrease has an equal effect on resource demand and the opposite for increase is also true.

How does this concept become a part of the goal for profit maximization? What is the basic rule for resource use to minimize costs?

The concept of resource demand becomes an integral part of profit maximization. If the demand for final goods is adequate, firms try to negotiate at the price of raw materials also and try their best to increase profits by getting the resources at a relatively lesser rate and being able to gain higher profits respectively.

The basic rule for resource use to minimize costs is to utilize them in the best possible manner and to get highest possible productivity possible such that wastage can be minimized and the firm can maximize on its profits respectively.


Related Solutions

The primary goal of most businesses is profit maximization. Discuss the concept of profit maximization. How...
The primary goal of most businesses is profit maximization. Discuss the concept of profit maximization. How can it be reconciled with corporate social responsibility? Can profit maximization promote social welfare?
Profit Maximization. The primary goal of most businesses is profit maximization. Discuss the concept of profit...
Profit Maximization. The primary goal of most businesses is profit maximization. Discuss the concept of profit maximization. How can it be reconciled with corporate social responsibility? Can profit maximization promote social welfare?
Profit maximization does not adequately describe the goal of the firm because I. profit maximization does...
Profit maximization does not adequately describe the goal of the firm because I. profit maximization does not require the consideration of risk   II. profit maximization considers the timing of a project's return III. maximization of dividend payout ratio is a better description of the goal of a firm IV. both I and II V. None of the above Which of the following goals of the firm are synonymous (equivalent) to the maximization of shareholder wealth?        I. profit maximization II....
In “The Goal” by Eliyahu Goldratt: 1. How does “The Goal” define a bottleneck resource? Develop...
In “The Goal” by Eliyahu Goldratt: 1. How does “The Goal” define a bottleneck resource? Develop your own simple example of a bottleneck to demonstrate. (Not the examples from the book, not artificial examples!) Example: During the 20-30 minute period before the beginning of classes at Baruch, there are long lines that form in front of the elevators at NVC. This is an indication that elevators become the bottlenecks in the process that transports students from the ground floor to...
How does utility maximization relate to the concept of trade-offs and scarcity?
How does utility maximization relate to the concept of trade-offs and scarcity?
what does it mean to control the goal
what does it mean to control the goal
What are index funds? What does it mean to say that these are benchmarks? How are...
What are index funds? What does it mean to say that these are benchmarks? How are they used as benchmarks?
1. What is market commonality? What is resource similarity? What does it mean to say that these concepts are the building blocks for competitor analysis?
Read chapters 5-8 and address the below review questions: Please address the below review questions giving quality answers that show mastery of the concepts being discussed, using clear logic, and supporting facts. Also, the answers must directly address the questions. 1. What is market commonality? What is resource similarity? What does it mean to say that these concepts are the building blocks for competitor analysis? 2. What competitive dynamics can be expected among firms competing in slow-cycle markets? In fast-cycle...
the heart is considered a double pump, what does that mean? how does this pumping become...
the heart is considered a double pump, what does that mean? how does this pumping become impaired during congestive heart failure? what the stages of congestive heart failure? how can congestive heart failure cause a person to be susceptible to disease during this this time
What does it mean to say that markets are socially efficient? How does this relate to policy?
What does it mean to say that markets are socially efficient? How does this relate to policy?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT