ABSTRACT
So far, we have been analysing the behaviour of firms, and the effects of differing competitive conditions on that behaviour, largely from the point of view of the firm as a supplier of goods and services. Equally important, however, is the role of firms on the demand side of markets, which arises because of their need to buy goods and services to use as inputs into the production process. Clearly, a firm’s behaviour in input markets cannot be independent of its behaviour in product markets, since ultimately the quantity of inputs it buys is determined by the level of output it wishes to produce. Indeed, analysing the behaviour of firms in input markets really involves no more than looking at a different aspect of the behaviour that has been the focus of attention in previous chapters. Nevertheless, it does provide an opportunity to extend the discussion to some of the more specific features of input markets and to take into account some competitive situations that we have not so far considered. Before getting on to that, however, we need first to develop the more basic analysis of the profit-maximizing firm’s demand for inputs when it operates in competitive input markets.
