BORIS V. KORNEICHUK
THE TRANSFORMATIONAL MODELS OF CONSUMPTION AND
PRODUCTION: TOWARDS AN INSTITUTIONAL MICROECONOMICS
Adjusted wage rate The ratio of monetary wage rate to
the rate of the working routine. This measure describes
total remuneration that is received by a worker in an hour
of work and determined by monetary payment level as well as
by the degree of creative sapidity (richness) of labor.
Consumer’s target isoquant A variety of bundles “time
of wait — spending of money”, each of which is able to
provide a given target achievement. It is meant that the
consumer is able to attain his/her objective by using two
resources: time and money. Is we assume that the consumer
has an opportunity to reduce time of wait by one hour by
paying a fixed “cost of wait”, then the consumer’s target
isoquant represents a rectilinear segment. By its absolute
value, the slope ratio of this segment to the “time of wait”
axis equals cost of wait.
Creative labor supply function The dependence of the
quantity of labor supplied on the rate of richness of labor
while the wage rate is held constant. If the rate of
richness of labor is equal to zero, this function value
amounts to labor supply in the traditional model. As the
rate of richness of labor increases, the creative labor
supply function increases too, right up to reach its maximum
possible level, and then invariably rests on this level.
Dual consumption models Two models in which
constraining and objective parameters of consumption trade
places. The traditional model of consumption and the
transformational model of target consumption are dual one in
respect to another. In the first model the consumer’s target
is to maximize utility, and the constraining (given)
parameter is the quantity of financial resource (budget)
used. In the second model the consumer’s goal is to minimize
the quantity of resource used (to minimize irksomeness),
while the constraining parameter is a given utility level.
Dual production models Two models in which
constraining and criterion parameters of production trade
places. The traditional model of production and the
transformational model of target production are dual one in
respect to another. In the first model the producer’s target
is to maximize product output, and the constraining (given)
parameter is the quantity of input (costs) used. In the
second model the producer’s goal is to minimize the quantity
of input used (to minimize costs), while the constraining
parameter is a given output level (or another productive
Entrepreneur equilibrium A situation when his/her
utility function defined for a variety of bundles
“consumption-savings” reaches its maximum level subject to
the given value of profit. In other words, an optimal profit
division into two parts — consumption and savings — is
Equilibrium output curve In the transformational
model of the firm this curve reflects the dependence of the
firm’s equilibrium output on the initial output. The curve
consists of three rectilinear parts: two horizontal segments
and a sloping one: the equilibrium output does not change as
the initial output increases up to its first threshold value
and as it decreases up to its second threshold value, while
between the two indicated values the equilibrium output is
equal to the initial value.
Inertial models of production Models which allow for
transformational costs determined by the following
productive parameters deviating from their initial values:
staff number, product output level, its price, etc. For
instance, hiring and firing costs describe sluggishness of
human factor of production. In the traditional production
models it is implicitly assumed that changes in productive
parameters are made without any additional costs, i.e. these
models do not take into account inertial factors of
Inertial production model, one-factor Model taking into
account a single type of transformational costs —
Inertial production model, two-factor Model taking into
account two kinds of transformational costs: hiring-firing
costs and the costs of changing output level. The former
describe sluggishness of human factor, while the latter
characterize technological factor of production.
Labor usage intensity The number of staff employed in
a unit of time. It equals total quantity of labor input
divided by the production run. It serves as one of the
arguments of the modified production function.
Marginal utility of consumption An increment of
utility obtained by entrepreneur from increasing consumption
by one additional dollar. The function of marginal utility
of consumption is a partial derivative of entrepreneur’s
utility function with respect to the quantity consumed.
Marginal utility of savings An increment of utility
obtained by entrepreneur from increasing savings amount by
one dollar. The function of marginal utility of savings is a
partial derivative of entrepreneur’s utility function with
respect to the quantity saved.
Marginal physical product of labor in dynamics Additional
quantity of output that can be obtained by increasing the
production run by a unit while holding staffing level
constant. The function of marginal physical product of labor
in dynamics is a partial derivative of modified production
function with respect to the production run duration.
Marginal physical product of labor in statics
Additional quantity of output that can be obtained by
employing one additional worker while holding the production
run constant. The function of marginal physical product of
labor in statics is a partial derivative of modified
production function with respect to the staff number.
Modified production function The dependence of the
product output on production period and labor usage
intensity. Isoquants of the modified production function are
typically those of downward-sloping shape.
Modified utility function The dependence of utility
on wait duration and the quantity of the product consumed.
Marginal irksomeness of wait is equal to the increment of
utility resulting from a unitary increase in wait duration.
As the marginal irksomeness of the wait is negative,
indifference curves of the modified utility function are
those of increasing type.
Producer’s target isoquant A variety of labor-capital
bundles, each of which is able to provide a given productive
target achievement. In the transformational model of target
production, the target isoquant plays a role similar to that
of production function in the traditional production model.
Production run A time span during which inputs are
used and a product is made. It amounts to total quantity of
labor input divided by labor usage intensity. It serves as
one of the arguments of modified production function.
Production variant A set of two parameters: input
intensity and a production run. The first parameter times
the second one yield total input. In the traditional models
of production the concept of production variant is not
considered, since any quantity of input is associated with a
single value of production function. In the transformational
models of production, for the same total input there can be
different levels of product output, depending on the
production variant having been actualized.
Quasi-classical production function A modified
production function taking on the same values whenever total
quantity of labor input rests the same, and at the same time
remaining a function of two independent variables:
production run and labor usage intensity.
Quasi-linear production model A transformational
model of production built up on the basis of L. Kantorovich
linear production model by means of incorporating thereinto
the assumption that there exist transformational costs of
changing quantity of product output. The producer’s
objective in this model is to maximize net revenue equal to
the difference between the market value of the goods
produced and total transformational costs. Contour lines, or
isoquants of the producer’s objective function, represent
Rate of richness of labor A proportion of creative
components in overall labor hours of the person employed.
Together with the rate of working routine the rate of
richness of labor add up to unity.
Rate of working routine A proportion of simple
(non-creative) components in overall labor hours of the
person employed. Together with the rate of richness of labor
the rate of working routine add up to unity.
Threshold values of output Two values of a firm’s
initial output between which equilibrium output coincides
with the initial one. When the initial output level is lower
than the first threshold value, the equilibrium output level
is steadily equal to the first threshold value. When the
initial output level is higher than the second threshold
value, the equilibrium output level is steadily equal to the
second threshold value.
Traditional (static) model Microeconomic model that
does not allow for the impact of transformational factors,
i.e. does not look at initial values of economic indicators,
does not investigate the process of their changes taking
place while an object being modeled is going into
equilibrium condition. It is assumed that such a transition
occurs just once, instantly and without any additional
Transformation A purposive change in the state of
economic object. Transformation is treated not as a resuming
cyclic process which is under way in invariable conditions,
but as a one-time act accomplished in concrete specific
conditions. A major particular case of transformation is
personal development in the course of purposive creative
Transformational costs of changing output level These
are expenditures for readjusting equipment, installing new
machine tools and dismantling the old ones in process of
changing a producer’s state. These costs characterize
sluggishness of technological factor of production.
Transformational costs of changing price These
include the costs of changing price tickets, making
alterations in financial documents, etc., as well as a loss
of the firm’s revenue associated with consumers’ adverse
reaction triggered by the fact of the price increase itself.
These costs characterize sluggishness of market factor of
Transformational curve of demand for product A curve
of consumer’s demand for a product in transformational
models taking into account logistic or informational factors
of consumption. Its main distinction from traditional curve
of demand is that it has a sluggishness segment along which
demand is perfectly inelastic.
Transformational factor Economic phenomenon
influencing the process of changing in the state of some
microeconomic object: consumer, producer, firm, or
Transformational factor of consumption, creative An
individual’s quest to maximize the time of creative activity
and minimize the time of routine activity (wait). It is also
described as a factor of expectation (of wait). In a number
of models, the degree of its influence is determined by
irksomeness of the wait. The factor is taken into account in
the models interpreting consumption as “creative
Transformational factor of consumption, informational
An individual’s perception of irksomeness of measuring
utility as he/she is going into equilibrium state. The
degree of its influence is determined by the level of
irksomeness of measuring utility. If the individual has
earlier experienced consuming the given amount of a product,
the respective irksomeness of measuring utility is equal to
zero. The factor is taken into account in the models
interpreting utility as “emotional utility”.
Transformational factor of consumption, logistic An
individual’s perception of irksomeness of changing a product
stock as he/she is going into equilibrium state. The degree
of its influence is determined by the level of irksomeness
of changing the stock of the product. If the equilibrium
product stock coincides with the initial one, then the
irksomeness of the product stock change is equal to zero.
The factor is taken into account in the models interpreting
utility as “rational utility”.
Transformational factor of production, inertial It is
a necessity to incur transformational costs when changing a
producer’s state. The degree of its influence is determined
by the level of transformational costs. Basic kinds of
transformational costs are the following: hiring-firing
costs, the costs of changing output level, the costs of
Transformational factor of production, variable The
factor is defined as a producer’s freedom in choosing one or
another production variant, i.e. determining values of two
parameters: production run and labor usage intensity. The
nature of its influence is determined by the form of
modified production function.
Transformational hiring-firing costs These are
expenditures for hiring new employees and firing old ones in
process of changing a producer’s state. These costs
characterize sluggishness of human factor of production.
Transformational labor demand curve It is a curve of
a producer’s demand for labor considered in the models
allowing for transformational costs. Its main distinction
from traditional curve of demand for labor is that it has a
sluggishness segment along which demand is perfectly
inelastic. The higher are transformational costs, the longer
is the sluggishness segment.
Transformational model Microeconomic model derived
from a traditional model by means of introducing additional
assumptions referring to the effect of one or another
Transformational production function It expresses the
dependence of the product output on the initial and current
staff numbers. It equals the difference between static
production function and personnel hiring-firing costs.
Wait A general term used to denote lower kinds of
human activity. Time of wait includes the time of sleep,
simple labor, illness, dawdling as well as the time spent in
transport, the time wasted while queuing up and the like.
Wait opposes creative activity, it is a bad. Wait duration
serves as one of the arguments of modified utility function.