Economics of Input Demand

1
Economics of Input Demand

• Introduction
• A. Factor of production input resource
• B. This logic works for all inputs where
• proportions are not fixed.
• C. Demand is derived from the demand for
• products. It is joint with other inputs.
• D. Review of two important concepts
• 1. Profit maximization
• 2. Law of Diminishing Returns

2
Economics of Input Demand

• Demand for a single variable input
• A. Other inputs and technology are fixed.
• B. Marginal benefit marginal cost
• C. Marginal benefit MRP VMPP
• D. Marginal revenue product
• MPP of input x MR of output
• E. Wage change gt change in quantity demanded
• F. Changes in labor demand causes and effects

3
Economics of Input Demand

• More than one variable input
• A. The basic problem Min TC s.t. q
• B. Discrete example
• C. Continuously variable inputs and input
  substitution (isoquant).
• D. Solution MPPL /PL MPPK/PK
• E. What cost effectiveness means

4
Economics of Input Demand

• Factor demand, supply, and pricingeffect
• of differences in supply elasticities.
• V. Labor demand and the general level of wages
• Marg. Prod. as a theory of distribution
• A. Differences in input endowments
• B. Differences in input returns
• C. Differences in size distribution
• D. Differences in relative shares