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Factor Markets.

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Presentation on theme: "Factor Markets."— Presentation transcript:

1 Factor Markets

2 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.

3 A Competitive Firm’s Input Demands
For the competitive firm the marginal revenue of a unit of input i is

4 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?

5 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

6 A Monopolist’s Demands for Inputs
The profit-maximizing input levels are determined by and

7 A Monopolist’s Demands for Inputs
That is,

8 A Monopolist’s Demands for Inputs
That is, 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 =

9 A Monopolist’s Demands for Inputs
$/input unit xi

10 A Monopolist’s Demands for Inputs
$/input unit wi xi

11 A Monopolist’s Demands for Inputs
$/input unit wi xi The monopolist demands fewer input units than does the perfectly competitive firm.


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