In the context of the production function and marginal revenue product, which of the following is an example of derived demand?

• A. A consumer choosing between coffee and tea based on taste preferences.
• B. A restaurant hiring an additional cook because it expects the cook to increase meal output and revenue.
• C. A household buying more pizza because the price of pizza falls.
• D. A student purchasing a concert ticket for entertainment.

Answer: (B)

Verified step by step guidance

1. Understand the concept of derived demand: Derived demand refers to the demand for a factor of production or input that arises from the demand for the final good or service it helps produce.
2. Identify the difference between direct demand and derived demand: Direct demand is for goods and services consumed for their own sake (like coffee, tea, pizza, or concert tickets), while derived demand is for inputs used to produce those goods or services (like labor, machinery, or raw materials).
3. Analyze each option to see if the demand is for a final good or an input: For example, a consumer choosing coffee or tea is direct demand for final goods, not derived demand.
4. Focus on the example where a restaurant hires an additional cook: This is derived demand because the restaurant demands labor (the cook) based on the expected increase in meal output and revenue, which is the final product.
5. Conclude that the correct example of derived demand is the restaurant hiring an additional cook, as it reflects demand for an input driven by the demand for the final product.