Introduction

In chapter 6, and to some extent in chapter 8, an extension of the Allen–Mosak theory of jointly-derived input demand functions was presented.1 The theory was generalized in chapter 6 to cover imperfect competition in the commodity market; in chapter 8 the extension covered imperfect competition in the input markets. One ‘peculiar’ result emerged and its reason was not explained. Specifically, it could not be shown that commodity price always varies directly with input price.

On the face of it, this seems to be perverse price behavior. However, it is possible to extend the analysis of the previous chapters, to explain precisely the conditions under which the peculiar price variation can occur, and to specify some of the characteristics of production functions that give rise to the phenomenon. And, having found the key to this particular puzzle, it is possible to present several interesting extensions of the theories of production and of jointly-derived input demand functions. As the chapter title suggests, it all turns upon the concept of ‘inferior factors’ of production.

In what follows, a sketch of the model is first presented for the convenience of the reader. The definition of an ‘inferior factor’ of production is then introduced and analyzed. In the bulk of the chapter, sections 9.4– 9.6, the concept of factor inferiority is used to analyze various aspects of the theories of production and input demand. Section 7 contains a numerical example of a production function in which input 1 is inferior, and Section 8 provides a very brief conclusion.