Chapter 14: Problem 14

The most important influence on a firm's demand for a factor of production is (LO4) a) the quantities of other resources b) the prices of other resources c) its productivity d) the demand for the final product

Short Answer

Expert verified

The most important influence on a firm's demand for a factor of production is its productivity (Option C). Higher productivity allows firms to produce more goods and services at a lower cost, which increases the demand for highly productive resources over less productive ones.

Step by step solution

Understanding Factors of Production

Factors of production are the various resources used by a firm to produce goods and services. These resources can be land, labor, capital, and entrepreneurship. A firm's demand for these resources is influenced by various factors. Let's analyze these factors in the context of each given option.

Option A: The quantities of other resources

The quantities of other resources may influence a firm's demand for a factor of production, but it is not the most important influence. For example, if a firm already has an excess of machinery (capital), it may affect how much labor it requires. However, other factors such as productivity and the market demand for the final product play more significant roles in determining the firm's demand for resources.

Option B: The prices of other resources

The prices of other resources can also impact the demand for a particular resource. If other resources become more expensive, a firm may require less of the expensive resources and more of the relatively cheaper resources. However, it is essential to consider that resource prices are not the most important influence in this scenario, as other factors also contribute to a firm's demand for resources.

Option C: Its productivity

The productivity of a factor of production is a critical determinant of a firm's demand for that resource. Firms generally prefer to use resources with higher productivity, as it allows them to produce more goods and services at a lower cost. As a result, the demand for highly productive resources is greater than the demand for less productive ones. This factor is crucial when considering the most important influence on a firm's demand for factors of production.

Option D: The demand for the final product

The market demand for the final product plays a vital role in a firm's demand for resources. If there is a high demand for the goods and services the firm produces, it will likely need more resources to meet that demand. Conversely, if there is less demand for the final product, a firm's demand for resources will also decrease. While this is an important factor to consider, it should be analyzed alongside the productivity of resources to determine the most important influence on a firm's demand for factors of production. Based on this analysis, Option C: Its productivity is the most important influence on a firm's demand for a factor of production.