Value & Capital, CHAPTER VII, Section 6

Having treated some special cases in earlier sections, Chapter VII concludes in this section by summarizing what is known about the general case of a firm employing any number of factors to produce any number of products.  The summary still assumes that, "the factors ... co-operate with a fixed productive opportunity of limited capacity, so that the condition of increasing marginal cost is satisfied."  The discussion looks at what happens when a price of either a factor or a product changes (with all other prices being unchanged).

If there is a fall in price for some factor A, then the demand for A must increase.  If this happens, it must be balanced somehow -- either by the supply of some products increasing, or the demand for some other factors decreasing, or both.  Hicks goes on to explain:

The typical result of a fall in the price of a factor is then this:  that the supplies of products will expand, and the demand for other factors will expand too.  But to each of these general rules a limited amount of exception is possible, when the fixed resources are influential enough;  some factors may be substitutes for the first factor, some products may be regressive against it; the demands for substitute factors, and the supplies of regressive products, will decline.

Hicks explains in a footnote that regression seems to be more plausible in the multiple-product case than the single-product case.  If factor A plays an important role in the production of product X, then we may expect the output of X to increase when employment of A increases.  "But if the entrepreneur's fixed resources are devoted more to the production of X, they will be less available for the production of Y.  Thus A and Y may be regressive."

If there is a rise in the price of some product X, then the supply of X must increase.  Again, this effect must be balanced, and in this case it will be by an increase in employment of factors, a decreased output of some other products, or both.  Hicks also explains that

There are essentially the same reasons for expecting complementarity to be dominant among products as for expecting it to be dominant among factors (all the products must be complementary if the contribution to production of the entrepreneur's fixed resources is negligible).  Thus, though exceptions are possible, it is likely that the outputs of most of the other products will tend to rise.

Thus we would typically expect that an increased price of one product will cause an increased supply of other products and an increased demand for the factors.  "Substitute products and regressive factors will only be possible to a limited extent."

Although not stated explicitly, one can conclude that a price change for either a factor or product in the opposite direction of those assumed in the text will drive results in the opposite directions of those noted.

Hicks concludes by noting that these principles for the market conduct of a firm differ from those governing the behavior of an individual in two important ways:  (1) the income effect is absent, and (2) the general tendency will be for factors employed by the same firm to be complementary and for products jointly produced by a firm to be complementary.

This concludes Chapter VII.  Thank you for reading.

Noted in passing:  I am writing this post on the morning after Britain's vote to leave the European Union.  I wonder what Sir John Hicks would have made of this situation.  On the one hand, I tend to believe that he would generally support free trade and the economic integration facilitated by the EU.  On the other hand, some things I've read make me believe he had a tendency at times toward nationalist views, and I do think this vote was motivated largely by nationalism.