IDEAS home Printed from https://ideas.repec.org/a/ibf/beaccr/v6y2014i1p13-22.html
   My bibliography  Save this article

Linking The Substitution And Output Effects Of Production To Profit Maximization In The Intermediate Microeconomics Course

Author

Listed:
  • Jeffrey Wolcowitz

Abstract

In a recent article, Thaver (2013) makes the case for including in intermediate microeconomics textbooks analysis of the substitution and output effects of a firm’s response to a change in the price of an input. In her analysis, Thaver assumes that the firm is constrained by a fixed budget for inputs, making the firm’s substitution and output effects analytically identical to the consumer’s substitution and income effects. Intermediate microeconomics textbooks typically do not assume a fixed budget for inputs when describing a firm’s profit-maximizing behavior. This paper removes the assumption of a fixed budget for inputs and provides a non-calculus presentation of substitution and output effects suitable for the intermediate course. Without this assumption, the substitution and output effects of the change in the price of an input must work in the same direction regardless of whether an input is normal or inferior, and the firm’s input demand curve, unlike a consumer’s demand curve for a good, must slope downward.

Suggested Citation

  • Jeffrey Wolcowitz, 2014. "Linking The Substitution And Output Effects Of Production To Profit Maximization In The Intermediate Microeconomics Course," Business Education and Accreditation, The Institute for Business and Finance Research, vol. 6(1), pages 13-22.
    • Handle: RePEc:ibf:beaccr:v:6:y:2014:i:1:p:13-22
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/beaccr/bea-v6n1-2014/BEA-V6N1-2014-2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ranjini L. Thaver, 2013. "Integrating The Output And Substitution Effects Of Production Into The Intermediate Microeconomics Textbook," Business Education and Accreditation, The Institute for Business and Finance Research, vol. 5(1), pages 81-90.
    2. D. V. T. Bear, 1965. "Inferior Inputs and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 73(3), pages 287-287.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Broll, Udo & Wong, Keith K.P., 2010. "The firm under uncertainty: capital structure and background risk," Dresden Discussion Paper Series in Economics 04/10, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    2. José Ramón Ruiz-Tamarit & Manuel Sánchez-Moreno, "undated". "A Closer Look at the Comparative Statics in Competitive Markets," Working Papers 2005-13, FEDEA.
    3. Koji Okuguchi, 2010. "Inferior factor in Cournot oligopoly," Journal of Economics, Springer, vol. 101(2), pages 125-131, October.
    4. Guha, Brishti, 2013. "Guns and crime revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 1-10.
    5. Ebert, Udo & Welsch, Heinz, 2011. "Optimal environmental taxes and standards: Implications of the materials balance," Ecological Economics, Elsevier, vol. 70(12), pages 2454-2460.
    6. Udo Broll & Kit Wong, 2013. "The firm under uncertainty: real and financial decisions," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 36(2), pages 125-136, November.
    7. Pope, Rulon D. & Kramer, Randall A., 1978. "Production Uncertainty and Factor Demands for the Competitive Firm," Working Papers 225637, University of California, Davis, Department of Agricultural and Resource Economics.
    8. Brishti Guha, 2015. "“Inferiority” complex? Policing, private precautions and crime," European Journal of Law and Economics, Springer, vol. 39(1), pages 97-106, February.
    9. Anderton Charles H., 2014. "Killing Civilians as an Inferior Input in a Rational Choice Model of Genocide and Mass Killing," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 20(2), pages 327-346, April.
    10. Broll, Udo & Wong, Kit Pong, 2003. "Capital structure and the firm under uncertainty," Dresden Discussion Paper Series in Economics 20/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    11. repec:ebl:ecbull:v:17:y:2006:i:6:p:1-6 is not listed on IDEAS
    12. Strobl, Eric & Walsh, Frank, 2011. "The ambiguous effect of minimum wages on hours," Labour Economics, Elsevier, vol. 18(2), pages 218-228, April.
    13. Nitzan Weiss, 1983. "Leverage, Risk-Adjusted Discount Rate and Industry Equilibrium," The American Economist, Sage Publications, vol. 27(1), pages 5-12, March.
    14. Braulke, Michael, 1982. "Price responsiveness and market conditions," Discussion Papers, Series I 166, University of Konstanz, Department of Economics.
    15. Charles E. Scott, 1977. "A Simplified and Generalized Graphical Proof of the Downward Slope of a Factor Demand Curve," The American Economist, Sage Publications, vol. 21(1), pages 34-38, March.

    More about this item

    Keywords

    Substitution Effect; Output Effect; Isoquants; Consumer Theory; Production Theory; Input Demand;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibf:beaccr:v:6:y:2014:i:1:p:13-22. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mercedes Jalbert (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.