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Input Use and Price Elasticity of Demand

Select a good or service (input) used by your firm or by you when performing your job.

a. Select two factors (for example revenue, technology, or the relative price of a substitute input) and discuss how a change in each would alter the use of the input.

b. For this input is your firm's price elasticity of demand relatively elastic or inelastic?

c. What will the MARKET demand for this input be in five years and briefly why?

Solution Preview

INPUT USE AND PRICE ELASTICITY OF DEMAND: EFFECT OF FACTOR CHANGES

For this report, the input is beef, a raw material used in the production of hamburger. Analysis will be made on the following:
1. Effects of changes in the following in its use:
1.1 revenue and

An increase in revenue will encourage the producer to produce more because the change in revenue would mean an increase in demand for hamburger. This would result to an increase in the use of the inputs used in the production of hamburger, one of which is beef.
1. 2 relative price of a ...

Solution Summary

This report deals with input demand or use and how it is affected by changes in factors such as revenue and price of a substitute product. It was emphasized that increase in revenue would encourage the producer to produce more, resulting to an increase in the demand for a certain input. However, a decrease in the price of a substitute product may result to a decrease in the demand for the inputs used in the production. Unlike consumer items, the demand for production inputs may not be price elastic.This report further noted that in the long run, demand for certain inputs may decrease because the producer would have adequate time to apply backward integration growth strategy.

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