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 [1]
Subject X2:
Economics [1]