Ch26_Factor Markets
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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
Chapter Twenty-Six
Factor Markets
A Competitive Firm’s Input Demands
A
purely competitive firm is a pricetaker 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 uni is,
A Monopolist’s Demands for Inputs
d (p( y)y) y m * MRP 1 ( x1 ) MR( y) MP1 ( x* ) w1 1 dy x1 d (p( y)y) y m * MRP 1 ( x1 ) MR( y) MP2 ( x* ) w 2 2 dy x2
the firm uses two inputs to produce a single output. The firm’s production function is
y f ( x1 , x 2 ).
So
the firm’s profit is
( x1 , x 2 ) p( y)y w1x1 w 2x 2 .
A Competitive Firm’s Input Demands
For
the competitive firm the marginal revenue of a unit of input i is
MRPi( xi ) p MPi ( xi ).
A Monopolist’s Demands for Inputs
wi
xi
A Monopolist’s Demands for Inputs
$/input unit
p MPi( xi )
MR( y) MPi( xi )
wi
xi The monopolist demands fewer input units than does the perfectly competitive firm.
A Monopolist’s Demands for Inputs
y f ( x1 , x 2 ).
( x1 , x 2 ) p( y)y w1x1 w 2x 2 .
The profit-maximizing input levels are determined by d (p( y)y) y w1 0 x1 dy x1 and
x*m i
x*c i
A Monopolist’s Demands for Inputs
$/input unit
p MPi( xi )
MR( y) MPi( xi )
xi
A Monopolist’s Demands for Inputs
$/input unit
p MPi( xi )
MR( y) MPi( xi )
d (p( y)y) y w 2 0. x2 dy x2
A Monopolist’s Demands for Inputs
d (p( y)y) y m * MRP 1 ( x1 ) MR( y) MP1 ( x* ) w1 1 dy x1 d (p( y)y) y m * MRP 1 ( x1 ) MR( y) MP2 ( x* ) w 2 2 dy x2
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.
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
Chapter Twenty-Six
Factor Markets
A Competitive Firm’s Input Demands
A
purely competitive firm is a pricetaker 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 uni is,
A Monopolist’s Demands for Inputs
d (p( y)y) y m * MRP 1 ( x1 ) MR( y) MP1 ( x* ) w1 1 dy x1 d (p( y)y) y m * MRP 1 ( x1 ) MR( y) MP2 ( x* ) w 2 2 dy x2
the firm uses two inputs to produce a single output. The firm’s production function is
y f ( x1 , x 2 ).
So
the firm’s profit is
( x1 , x 2 ) p( y)y w1x1 w 2x 2 .
A Competitive Firm’s Input Demands
For
the competitive firm the marginal revenue of a unit of input i is
MRPi( xi ) p MPi ( xi ).
A Monopolist’s Demands for Inputs
wi
xi
A Monopolist’s Demands for Inputs
$/input unit
p MPi( xi )
MR( y) MPi( xi )
wi
xi The monopolist demands fewer input units than does the perfectly competitive firm.
A Monopolist’s Demands for Inputs
y f ( x1 , x 2 ).
( x1 , x 2 ) p( y)y w1x1 w 2x 2 .
The profit-maximizing input levels are determined by d (p( y)y) y w1 0 x1 dy x1 and
x*m i
x*c i
A Monopolist’s Demands for Inputs
$/input unit
p MPi( xi )
MR( y) MPi( xi )
xi
A Monopolist’s Demands for Inputs
$/input unit
p MPi( xi )
MR( y) MPi( xi )
d (p( y)y) y w 2 0. x2 dy x2
A Monopolist’s Demands for Inputs
d (p( y)y) y m * MRP 1 ( x1 ) MR( y) MP1 ( x* ) w1 1 dy x1 d (p( y)y) y m * MRP 1 ( x1 ) MR( y) MP2 ( x* ) w 2 2 dy x2
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.