Don,
From the above we see that when used for headache relief, Tylenol is a first order good consumer good, and will be produced in high volume and sold at a relatively low market price.
Is the fact that Tylenol is produced in high volume related to its relatively low market price? Or is this coincidence?
OTOH, when Tylenol is used in KDP, it is a non-specific production factor, adding only a small amount of unit demand for Tylenol, and not significantly changing its market price.
So the use of Tylenol as a factor of production would minimally push it to the right on its 'Laffer Curve', slightly below max revenues, but not having a significant impact on its overall revenues due to its high volume sales as a consumer good? (Also, I assume that it's Laffer Curve represents all revenues to the company that manufactures it, regardless of whether it is used as a consumer good or a factor of production. In this case, the company would adjust sales to buyers, whether they be those who intend to use it as a consumer good or factor of production, to 're-maximize' revenues.)
KDP is a relatively low volume, highly valued and priced consumer product. These characteristics are transmitted directly to its specific production factor, Lytenol. The market price of Lytenol cannot be higher than the market price of KDP minus the market price of Tylenol without impacting either profits or volume.
This was the part I initially had the most trouble understanding, but I think I have a grasp of it now. The last three words refer to the profits or volume of Lytenol, not KDP, right? The general conclusion that I think you are reaching for is that the price of a specific factor of production which yields maximal revenues is mostly determined by the price of the consumer good it produces. However, the price of a non-specific factor of production which yields maximal revenues is much more variable. |
