"Inferior Factors" and the Theories of Production and Input Demand

In a previous issue of this Journal,2 I provided an extension of the Allen-Mosak theory of jointly-derived input demand functions3 to cover imperfect competition in the commodity market. One result emerged. Specifically, I could not prove that commodity price alvays varies directly with input price. Further, I was unable to explain why it might not do so. I can now provide an explanation of this perverse behaviour. Indeed, it is possible to extend the analysis of the former paper, to explain precisely the conditions under which the peculiar price variation can occur, and to specify some of the characteristics of production functions that give rise to the phenomenon. Having found the key to this particular puzzle, it is possible to present several interesting extensions of the theories of production and of jointly-derived input demand functions. Before turning to the positive aspects of the paper, a negative result would seem to be worth a sentence or two. Proposition: in general, absolutely nothing can be said about the characteristics of derived input demand functions if there is imperfect competition in the input markets, i.e. if the price a firm pays for an input varies with its usage by the firm. No substantiation of this proposition is offered here, although the reason should be intuitively clear from the model presented below.4 In what follows a sketch of the basic model is first presented. The definition of an inferior of production is then introduced and analysed. In the bulk of the paper, Sections IV to VI, the concept of factor inferiority is used to analyse various aspects of the theories of production and input demand. Section VII is a very brief conclusion

Economics · Microeconomics · Production (economics) · Production theory · Economic theories and models

• Testing between Competing Models of Sharecropping

  Radwan Ali Shaban•Journal of Political Economy•1987

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