On inferior inputs and marginal returns |
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Authors: | Paolo Bertoletti Giorgio Rampa |
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Affiliation: | 1. Dipartimento di economia politica e metodi quantitativi, Facoltà di Economia, University of Pavia, Via San Felice, 7, 27100, Pavia, Italy
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Abstract: | An input is inferior if and only if an increase in its price raises all marginal productivities. A sufficient condition for input inferiority under quasi-concavity of the production function is then that there are increasing marginal returns with respect to the other input and a non-positive marginal productivity cross derivative. Thus, contrary to widespread opinion, input “competitiveness” is not needed. We discuss these facts and illustrate them by introducing a class of simple production function functional forms. Our results suggest that the existence of inferior inputs is naturally associated with increasing returns, and possibly strengthen the case for inferiority considerably. |
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