The Supply of Factors to a Particular Firm
Firm
Most firms employ only a tiny proportion of the economy’s total supply of
each factor. As a result, they can usually obtain their factors at the going
market price. This is true for labour, capital, and land. For example, a
commercial bank that is hoping to expand its economics department can
hire an extra economist and it will need to pay the going wage (or salary)
to attract that economist. A car manufacturer can purchase new robotics
equipment and will pay the market price to get it. And a rancher can buy
more land at the going market price. In each case the firm’s actions will
have no effect on the market price for the factors of production.
Individual firms generally face perfectly elastic supply curves for factors, even though the
supply for the economy as a whole may be quite inelastic.