Varian_Chapter26_Factor_Markets

Varian_Chapter26_Factor_Markets - are determined by ∂ ∂...

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Chapter Twenty-Six Factor Markets
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A Competitive Firm’s Input Demands A purely competitive firm is a price- taker in its output and input markets. It buys additional units of input i until the extra cost of extra unit exceeds the extra revenue generated by that input unit. MRP x w i i i ( ) * =
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A Competitive Firm’s Input Demands For the competitive firm the marginal revenue of a unit of input i is MRP x p MP x i i i i ( ) ( ). = ×
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A Monopolist’s Demands for Inputs What if the firm is a monopolist in its output market while still being a price-taker in its input markets?
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A Monopolist’s Demands for Inputs Suppose the firm uses two inputs to produce a single output. The firm’s production function is So the firm’s profit is y f x x = ( , ). 1 2 Π ( , ) ( ) . x x p y y w x w x 1 2 1 1 2 2 = - -
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A Monopolist’s Demands for Inputs y f x x = ( , ). 1 2 Π ( , ) ( ) . x x p y y w x w x 1 2 1 1 2 2 = - - The profit-maximizing input levels
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Unformatted text preview: are determined by ∂ ∂ ∂ ∂ Π x d p y y dy y x w 1 1 1 = - = ( ( ) ) ∂ ∂ ∂ ∂ Π x d p y y dy y x w 2 2 2 = - = ( ( ) ) . and A Monopolist’s Demands for Inputs That is, MRP x d p y y dy y x MR y MP x w m 1 1 1 1 1 1 ( ) ( ( ) ) ( ) ( ) * * = = × = ∂ ∂ d(p(y)y)/dy = MR(y) < p for all y > 0 so the marginal revenue product curve for a monopolist’s input is lower for all y >0 than is the marginal revenue product curve for a perfectly competitive firm. MRP x d p y y dy y x MR y MP x w m 1 1 2 2 2 2 ( ) ( ( ) ) ( ) ( ) * * = = × = ∂ ∂ A Monopolist’s Demands for Inputs MR y MP x i i ( ) ( ) × p MP x i i × ( ) x i $/input unit w i x i m * x i c * The monopolist demands fewer input units than does the perfectly competitive firm....
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This note was uploaded on 03/03/2011 for the course ECON 206 taught by Professor Ioanadan during the Spring '10 term at University of Toronto.

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Varian_Chapter26_Factor_Markets - are determined by ∂ ∂...

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