Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

286 INPUT PRICING AND EMPLOYMENT [CHAP. 13
rises. If there are 100 identical and perfectly competitive firms purchasing input A, each buys six units of input A at P a ¼ $4
(see point E on d 0 a in Fig. 13-2). Fig. 13-3
13.7 RENT AND QUASI-RENT
Any payment for an input over and above the minimum amount needed to bring forth its supply is rent.
Rent is a long-run concept; it is the entire payment made to an input whose supply is completely fixed (see
Problem 13.10).
Quasi-rent is a payment which need not be made in the short run in order to bring forth the supply of an
input. Thus, quasi-rent equals TR minus TVC (see Problems 13.11 and 13.12).
Perfect Competition in the Input Market and Monopoly in the Product
Market
13.8 PROFIT MAXIMIZATION AND LEAST-COST INPUT COMBINATIONS
The firm, which is the monopolistic (or an imperfectly competitive) seller of commodity X but a perfectly
competitive buyer of inputs A and B, will maximize its total profits when
(see Problems 13.13 and 13.14).
MP a
P a
¼ MP b
P b
¼ 1
MC x
¼ 1
MR x
13.9 THE DEMAND CURVE OF THE FIRM FOR ONE VARIABLE INPUT
When input A is the only variable input for the monopolistic seller of commodity X, the firm’s demand
curve for input A is given by its MRP a curve, which now lies below the VMP a curve because MR x is
smaller than P x . The MRP a ¼ MP a
. MR x and measures the change in the monopolist’s TR in selling the
output of commodity X that results from the employment of one additional unit of input A.
EXAMPLE 5. The first three columns of Table 13.2 are the same as in Table 13.1. Column (4) gives the declining prices at
which the monopolist can sell increasing quantities of commodity X. The TR x values of column (5) are obtained by multiplying
Q x by P x . The MRP a values of column (6) are then obtained from the difference between successive TR x values of
column (5). That is, the MRP a measures the change in the monopolist’s TR in selling the output of commodity X that results
from the employment of one additional unit of input A (together with fixed quantities of other inputs). More briefly,
MRP a ¼ DTR x /Dq a . The MRP a is also equal to the MP a times the MR x (see Problem 13.15). With monopoly (or imperfect
competition) in the product market, MR x , P x and so MRP a ¼ MP a
. MR x , MP a
. P x ¼ VMP a . The MRP a values in
column (6) fall because both the MP a and the MR x fall. Columns (6) and (1) of Table 2 represent the demand schedule