Interrelated Factor Demand with Nonconvex Adjustment Costs
17 Pages Posted: 11 Feb 2010
Date Written: April 30, 2008
In this paper we develop a model to describe a firm’s demand for two production factors which is subject to the presence of nonconvex adjustment costs. In our model simultaneous adjustment of these two production factors may either increase or decrease the total costs incurred by the firm. The magnitude of this change in total costs ultimately determines the likelihood of joint adjustment. We also show that the importance of interrelation is suppressed by large fixed costs.
Keywords: Factor Demand, Interrelation, Nonconvex Adjustment Costs
JEL Classification: D92, E22, E24, J23, L60
Suggested Citation: Suggested Citation