Factor Markets

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Factor Markets
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A Competitive Firms 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.

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A Competitive Firms Input Demands

• For the competitive firm the marginal revenue of
  a unit of input i is

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A Monopolists 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 Monopolists Demands for Inputs

• Suppose the firm uses two inputs to produce a
  single output.
• The firms production function is
• So the firms profit is

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A Monopolists Demands for Inputs
The profit-maximizing input levelsare determined
by
and
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A Monopolists Demands for Inputs
That is,
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A Monopolists Demands for Inputs
That is,
d(p(y)y)/dy MR(y) lt p for all y gt 0 so
themarginal revenue product curve for
a monopolists input is
lower for all y gt0 than is the marginal revenue
product curve for a perfectly competitive firm
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A Monopolists Demands for Inputs
/input unit
xi
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A Monopolists Demands for Inputs
/input unit
wi
xi
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A Monopolists Demands for Inputs
/input unit
wi
xi
The monopolist demands fewer input units than
does the perfectly competitive firm.