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Factor Demand in Perfect Competition: An Expository Note

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  • Sumner, Michael

Abstract

The standard exposition of the perfectly competitive firm's factor demands is deficit in this casual treatment of induced changes in product price in the short run, and of free entry in the long run. A wage decline will decrease the representative firm's (complementary) capital stock if returns to scale are constant, unless the industry's product demand is unusually elastic; and it will certainly do so if the long-run average cost curve is U-shaped. Hence, the demonstration that the labor demand curve is more elastic than the marginal value product schedule for a given product price is irrelevant. Copyright 1990 by Scottish Economic Society.

Suggested Citation

  • Sumner, Michael, 1990. "Factor Demand in Perfect Competition: An Expository Note," Scottish Journal of Political Economy, Scottish Economic Society, vol. 37(4), pages 379-385, November.
    • Handle: RePEc:bla:scotjp:v:37:y:1990:i:4:p:379-85
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