1. Chapter Twenty-Six Factor Markets

2. A Competitive Firm’s Input Demands u A purely competitive firm is a price- taker in its output and input markets. u It buys additional units of input i until the extra cost of extra unit exceeds the extra revenue generated by that input unit.

3. A Competitive Firm’s Input Demands u For the competitive firm the marginal revenue of a unit of input i is

4. A Monopolist’s Demands for Inputs u What if the firm is a monopolist in its output market while still being a price-taker in its input markets?

5. A Monopolist’s Demands for Inputs u Suppose the firm uses two inputs to produce a single output. u The firm’s production function is u So the firm’s profit is

6. A Monopolist’s Demands for Inputs The profit-maximizing input levels are determined by and

7. A Monopolist’s Demands for Inputs That is,

8. A Monopolist’s Demands for Inputs That is, d(p(y)y)/dy = MR(y) 0 so the marginal revenue product curve for a monopolist’s input is lower for all y >0 than is the marginal revenue product curve for a perfectly competitive firm.

9. A Monopolist’s Demands for Inputs xixi $/input unit

10. A Monopolist’s Demands for Inputs xixi $/input unit wiwi

11. A Monopolist’s Demands for Inputs xixi $/input unit wiwi The monopolist demands fewer input units than does the perfectly competitive firm.