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# Ch26 - Chapter Twenty-Six Factor Markets A Competitive...

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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 ( ) * =
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?
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 are determined by Π x d p y y dy y x w 1 1 1 0 = - = ( ( ) ) Π x d p y y dy y x w 2 2 2 0 = - = ( ( ) ) . 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 ( ) ( ( ) ) ( ) ( ) * * = = × =

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Ch26 - Chapter Twenty-Six Factor Markets A Competitive...

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