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On Marginal Returns and Inferior Inputs

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  • Paolo Bertoletti

    (Department of Economics and Quantitative Methods, University of Pavia)

  • Giorgio Rampa

    (Department of Economics and Quantitative Methods, University of Pavia)

Abstract

A necessary and sufficient condition for an input to be inferior is that, taking into account the input adjustment, an increase of its price raises the marginal productivity of all inputs. Contrary to a widespread opinion, it is not necessary that (some) inputs are “rivals” (i.e., that some marginal productivity cross derivative is negative). We discuss these facts and illustrate them by introducing a few simple functional forms for the production function. Our results suggest that the existence of inferior inputs is naturally associate to the presence of increasing returns, and possibly make the case for inferiority considerably stronger.

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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/wpaper/q145.pdf
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Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 145.

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Length: 15 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:pav:wpaper:145

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Keywords: inferior and normal inputs; marginal productivity; homotheticity.;

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References

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  1. Weber, Christian E, 2001. "A Production Function with an Inferior Input: Comment," Manchester School, University of Manchester, vol. 69(6), pages 616-22, December.
  2. Epstein, Gil S & Spiegel, Uriel, 2000. "A Production Function with an Inferior Input," Manchester School, University of Manchester, vol. 68(5), pages 503-15, September.
  3. Fisher, Franklin M., 1990. "Normal goods and the expenditure function," Journal of Economic Theory, Elsevier, vol. 51(2), pages 431-433, August.
  4. Paolo Bertoletti, 2005. "Elasticities of Substitution and Complementarity: A Synthesis," Journal of Productivity Analysis, Springer, vol. 24(2), pages 183-196, October.
  5. Leroux, Alain, 1987. "Preferences and normal goods: A sufficient condition," Journal of Economic Theory, Elsevier, vol. 43(1), pages 192-199, October.
  6. Cowell, Frank A., 2006. "Microeconomics: Principles and Analysis," OUP Catalogue, Oxford University Press, number 9780199267774.
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