Input demand functions can be derived from cost or profit functions. Which of the following is...
Input demand functions can be derived from cost or profit functions. Which of the following is true about these input demand functions.
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Input demand functions are always homogeneous of degree zero in prices. |
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Input demand is inelastic with respect to own price if it is based on cost minimising behaviour. |
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Input demand is inelastic with respect to own price if it is based on profit maximising behaviour. |
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Input demand functions are linear homogeneous in prices. |
Homework Answers
Answer:- Input demand is inelastic with respect to own price if it is based on cost minimizing behavior.
Reason:- Usually the two factor of production like labor or capital is inelastic when the firms manages the overhead cost with respect to minimizing the cost of production by choosing the optimal level of incurring expenses to produce every unit of output. If the above input levels are determined and demanded at very optimal level of fixing its own value of price, then whatever be the changes in the input rate of factors of production it wont effect the input demand at very high level when the firms follows new technology, optimizing the level uses of raw materials in order to have the cost reduction techniques.
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