Question

Given your knowledge regarding optimality of input use write out the “GENERALIZED” FOC for the ONE-output and MANY-inputs case considering: time preference considerations; a non-competitive market structure in the output; a perfectly competitive market structure in all the inputs markets; and HEDONIC pricing for the output but NOT for the inputs.

Answer 1

*A Perfectly competitive market structure in all inputs markets: A perfect competition is a market where there are a large number of buyers and seller in the market with homogenous products. Firma can enter and exits into the market without any restrictions and they are price taker. In the long run perfect competition earn normal profit because there is free entry and exit into the market. AR AND MR curve are horizontal towards x axis and are equal to each other.

*Hedonic pricing : Hedonic price is the price which determine on the basis of market value. It is related to the internal values and external values of a good. For example: if you are going to buy a house in main market where bus stop, hospital, Tempel,schools etc are near to that house. So it's market value will be more than those houses which are out of locality or situated near forest. So hedonic price is decided by the location, environment, internal factors of the house.

* A non competitive market structure : A non competitive market structure is a market where agents act and have the power to influence the price directly and indirectly. Oligopoly is a form of non competitive market structure. Firms are taking their decision and influencing the price of other firms. Such as if a firm will decrease their prices then other firms will also follow to that firm and also decrease their price so that a single firm can't attain a market profit. But if a firm will increase their prices so other firms will not follow to that firm.

* Time preference consideration: Time preference is the preference when we are receiving a good on the basis of current valuation at an earlier date which is compared to receive at later date. Suppose a person having high time preference and are giving more emphasized on thier well being in present and in future, he is having an average personality. While a person having low time preference and have more focused on his wellbeing in near future rather than present situation.