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Re: Question about factor pricing

Seraiah — Sun, 01 Jul 2012 17:44:07 GMT

Extending a little bit on the explanation...

As more people compete, more of the good is available for "higher tier", more valuable wants/needs, and then the product moves on to lower tier wants as it becomes more available.

Take water as an example.

Water would be extremely valuable if there was only barely enough to keep everyone alive, but as companies find ways to bring water into the economy, that most valuable highest tier use for water (Sustain human life) is completely fulfilled and then

1.) The cost of water goes down.
and
2.) Less valuable uses for water are found (showers, wet t-shirt contests, water parks, etc.)

As businesses compete to produce cheaper and cheaper water, lower and lower valued uses for water are fulfilled.

(I hope that makes sense.)

A company cannot possibly keep the price of water at the same price it would be if there were only barely enough to sustain human life for two reasons.

1.) No one would be able to afford all of it. (He would have a massive surplus.)
and
2.) A competitor will undercut him.

Re: Question about factor pricing

Seraiah — Thu, 28 Jun 2012 20:04:04 GMT

One word: Competition.
Of course everyone in the market will work for as high a profit as they can, but competitors will undercut as long as they can still make a profit.

Question about factor pricing

Reverend Yes — Thu, 28 Jun 2012 19:01:18 GMT

I'm reading Man Economy and State, specifically the section about pricing of factors. Rothbard writes that the factors are priced according to their diminishing marginal value (discounted). So in the example he uses, successive units of a factor are considered, the first with a value of 25oz., the second 24oz, etc. up to 30 units, priced at 10oz. each. My problem is with the following:

'...the capitalist is hiring a factor for 10 ounces which earns for him 20 ounces. Spurred on by this profit, he will hire more units of the factor until the MVP in this use will equal the MVP in the lowest-ranking use...'

Why will this happen? Why won't the capitalist be content to skim a 'pure profit' of 10 ounces? In brief, doesn't the phenomenon of a uniform price accruing to factors earning different amounts manifest as 'pure' entreprenurial profits? Isn't the factor earning the highest (the 25oz. factor) screwed over when it is paid 10oz. despite contributing production worth 25oz?