Long Run Input Demand

def. Ordinary Input Demand. Ordinary Demand for Inputs (=labor , capital )

def. Conditional Input Demand. Demand of input (=labor , capital ) in order to produce a certain level out output

  • HOWTO get: Cost Minimization
  • Properties
    1. HD0 in input prices
    2. Decreasing in own-price

Short Run Input Demand

Short run (own-price) labor demand:

  • is a parameter. Set it as the long-run input demand .
  • In the short run, a change in or will only operate within with no change in possible.
  • In the long run, we simply calculate the long-run input demand .
  • Relationship between long-run input demand, visually:

Long Run Output Supply

def. Ordinary Supply. Relates the prices of inputs and output with the quantity of output produced

Properties

  1. HD0 in prices
  2. increasing in output price
  3. decreasing in input price

(HowTo) Derive Supply Function

Method 1:

  1. Get Input Demand and Output Supply from Profit Maximization
  2. Substitute into the Production Function
  3. Simplify to get . Method 2:
  4. Get cost function from Cost Minimization

Short Run Output Supply

Short run (own-price) output supply:

  • is a parameter. Set it to the long-run input demand
  • Use the Production Function but with fixed.
  • In the short run, a change in or will only operate within with no change in possible.
  • In the long run, we simply calculate the long-run output demand .