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p x (p0 ; m0 ) m:
p0 x (p; m) m0
(because p x (p0 ; m0 ) m does not imply p xi (p0 ; mi0 ) mi for all i; similarly
for p0 x (p; m) m0 .)
A su cient condition for aggregate demand x (p; m) to satisfy WARP
is that individual Marshallian demands satisfy the (uncompensated) law of
demand, that is, substitution eects prevail over income eects.
yi < 0 : input
yi > 0 : output
Y RL :
Whenever the commodities which are outputs in the production set are xed,
O f1; ::; Lg (and hence also the complementary set of those which are in-
puts), the outer boundary of Y can typically be represented by a (continuous)
2.2. PRODUCER THEORY 13
production function, describing the maximal output level attainable for any
level of inputs. In the case where O = f1g ; e.g.,
y1 = f (z) i
(y1 ; z) 2 Y
@y1 > y1 : (y10 ; z) 2 Y
0
y 2 Y and y 0 y ) y0 2 Y
Correspondingly, f : RL+ 1
! R+ is monotonically increasing.
y; y 0 2 Y ) y + (1 )y 0 2 intY
corresponds to f : RL+ 1
! R+ is concave - has non-increasing returns
to scale.)
max p y
s.t. y 2 Y
- symmetric,
p1 y1
Let p = and y = : The input level z which solves the rms
w z
choice problem also solves the following problem:
min C = wz
z2RL
+
1
s:t: f (z) y1 :
This is perfectly analogous to expenditure minimization problem of con-
sumer. Hence we know that: