On Marginal Returns and Inferior Inputs
Paolo Bertoletti and
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Giorgio Rampa: Department of Economics and Quantitative Methods, University of Pavia
No 145, Quaderni di Dipartimento from University of Pavia, Department of Economics and Quantitative Methods
A 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.
Keywords: inferior and normal inputs; marginal productivity; homotheticity. (search for similar items in EconPapers)
JEL-codes: D11 D21 D24 (search for similar items in EconPapers)
Pages: 15 pages
New Economics Papers: this item is included in nep-eff and nep-mic
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