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Economics/comparing two production functions (manufacturing and food) in a specific factor model.


I am comparing two production functions (manufacturing and food) in a specific factor model.

the general problems are when equilibrium is supposed to be calculated for a given amount of capital, land and total labour.

however, if the land now comes for free, what will be the economics consequence to the problem. how to approach such a problem.

Economists are fond of the saying, "there's no such thing as a free lunch".  In other words, nothing is free, the only question is who is paying for the factors of production.  It is quite common for companies to have off-income statement costs, which are the result of consumed factors of production that don't register as a cost on the income statement.  Let's say, for example, that a company dumps waste into a river; well, that river has been consumed as a waste-disposal method, which is a factor of production.  If the company isn't paying for the consumption of that factor, then others are paying for it through increased cost of drinking water, increased cost of food from lost supply via the river, and, eventually, the tax funds used to clean the river when it becomes unbearable which everyone pays for.

Don't assume that just because a company isn't paying for the factors of production that it is free; someone else is just paying for the cost of that company's consumption.  Since this causes economic cost and price distortions, I would recommend accounting for this in your economic modeling, otherwise your model includes critical market failures that result in economic mismanagement.


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Michael Taillard


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