On Marginal Returns and Inferior Inputs
AbstractA 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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Bibliographic InfoPaper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 145.
Length: 15 pages
Date of creation: May 2011
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More information through EDIRC
inferior and normal inputs; marginal productivity; homotheticity.;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-08 (All new papers)
- NEP-EFF-2012-03-08 (Efficiency & Productivity)
- NEP-MIC-2012-03-08 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Leroux, Alain, 1987. "Preferences and normal goods: A sufficient condition," Journal of Economic Theory, Elsevier, vol. 43(1), pages 192-199, October.
- Paolo Bertoletti, 2005. "Elasticities of Substitution and Complementarity: A Synthesis," Journal of Productivity Analysis, Springer, vol. 24(2), pages 183-196, October.
- Cowell, Frank A., 2006. "Microeconomics: Principles and Analysis," OUP Catalogue, Oxford University Press, number 9780199267774, September.
- Weber, Christian E, 2001. "A Production Function with an Inferior Input: Comment," Manchester School, University of Manchester, vol. 69(6), pages 616-22, December.
- Fisher, Franklin M., 1990. "Normal goods and the expenditure function," Journal of Economic Theory, Elsevier, vol. 51(2), pages 431-433, August.
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