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Multiple Inputs

substition effect - comes into play  

  • could cause MPRL to shift more than for a single factor
    • wage decrease >> more labor demanded >> increases MPK >> firm buys more machinery >> increases MPL >> firms buys even more labor
  • wage rate decrease >> more labor >> more output >> more units of good in the market >> price would decrease
    • wage hardly ever changes w/o affecting market price

input supply - no limit in competitive purchase market  

  • firms can buy as much of each input as they want at market price
  • firm will not affect market price of input
  • input supply perfectly elastic >> price (wage/rental) stays constant
Subject: 
Economics
Subject X2: 
Economics

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