ABSTRACT
The joint demand analysis superficially seems to explain the determina tion of the price of each of two factors of production that must be com bined in rigidly fixed proportions to produce a product, but i t does so only by taking as given the supply curves of each of the two factors of pro duction. Now these supply curves in turn depend on conditions in mar kets for other products; they reflect the quantities of factors that would be available for this use rather than some other, and hence depend indirectly on derived demand conditions in other markets. The question arises whether the joint demand analysis can be generalized from the partial analysis so far considered to a more general one. What explains the prices of factors of production i f every product satisfies the conditions of the joint demand analysis, i.e., every product is produced under conditions of fixed proportions? ("Constant coefficients of production" is another way of describing this case.)
Let us first suppose that the proportions in which the factors are com bined is the same in all industries: that, say, i t takes one unit of A plus one unit of B to produce one unit of X or one unit of Y, etc. I n this case, any two "commodities" are perfect substitutes in production: that is, the in difference curve (or transformation curve) showing the various combina tions of, say, X and Y that can be produced with any given quantities of A and B w i l l be a straight line as in Figure 8.1 for 100 units of A and 100 units of B.
