Firm Supply of Output

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Firm Supply of Output
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Start with
The price of labor is exogenous to the firm.
The price of output is exogenous to the firm.
Find the firms supply of output function.
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The behavioral assumption
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Firm Demand for Input
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Start with
The price of labor is exogenous to the firm.
The price of output is exogenous to the firm.
Find the firms demand for input function.
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Or
Firm output supply and input demand are two sides
of the same thing.
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Market Supply Function
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• Goal For any GIVEN output price, find the output
  that will be supplied by the collection of all
  firms.
• Problem Firm output is a function of input
  price, but input price is a function of output
  price.
• Solution Find a relationship between any GIVEN
  output price and the (input) market clearing
  input price.

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Firm production function
Firm supply of output function
Firm demand for input function
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Suppose that input price is endogenous to the
collection of firms.
The supply of input facing the (output) market
suppliers is given by
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FOR ANY GIVEN OUTPUT PRICE FIND THE WAGE THAT
CLEARS THE LABOR MARKET
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Market Input Demand
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• Goal For any GIVEN input price, find the amount
  of input that will be demanded by the collection
  of all firms using that input.
• Problem Firm input demand is a function of
  output price, but output price is a function of
  input price.
• Solution Find a relationship between any GIVEN
  input price and the (output) market clearing
  output price.

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Suppose the demand for OUTPUT is given by
For any given wage rate, the market clearing
output price is
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Market clearing output price for a given wage rate
Market clearing input price for a given output
price
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