The Demand for a Single Variable Productive Service and the Adaptability of Capital

Abstract

It is the purpose of this paper to show that neoclassical distribution theory - grounded as it is in neoclassical production theory - cannot be regarded as possessing the degree of determinacy that is generally imparted to it. The problem becomes apparent in even the simplest of cases; the case in which a perfect competitor produces a product by means of the continuous substitution of two (imperfectly substitutable) inputs, one variable and one "fixed". It is shown that when the implications of the perfect adaptability assumption are made explicit, a given value of marginal product curve cannot be regarded as the demand curve for the variable productive service. In effect, the perfect adaptability of the "fixed" input results in a change in the physical - and, hence, technical - properties of the capital input. This, in turn, implies a change in the underlying production function: a phenomenon not accounted for in the orthodox treatment of the single variable input case.