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Competitive manufacturing with fluctuating demand and diverse technology: Mathematical proofs and illuminations on industry output-flexibility

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  • Aranoff, Gerald
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    Abstract

    I present an original model of competitive manufacturing with fluctuating demand and diverse technology with mathematical proofs. I discuss Aranoff's output-flexibility indicator, E(AC)-LRMC. I use the model to compute Aranoff's output-flexibility indicator to measure industry output-flexibility. I argue that a measure of industry output-flexibility is [beta]L(Q2 - Q1)/E(Q) I tie the demand-side discussion with the cost-side and show the degree of industry output-flexibility that will emerge under welfare and profit-maximizing pricing rules. I perform comparative statics of changes in technology, of demand, and of frequency of the high-peak state.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 28 (2011)
    Issue (Month): 3 (May)
    Pages: 1441-1450

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    Handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:1441-1450

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Capacity planning and investment Game theory Demand fluctuations Output flexibility Equilibrium Technology choice Cost curves Competitive manufacturing Marginal cost pricing Short-run average cost curve;

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    1. Samuelson, Paul A, 1972. "The Consumer Does Benefit From Feasible Price Stability," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 476-93, August.
    2. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Massell, Benton F, 1969. "Price Stabilization and Welfare," The Quarterly Journal of Economics, MIT Press, vol. 83(2), pages 284-98, May.
    4. Samuelson, Paul A, 1972. "The Consumer Does Benefit From Feasible Price Stability: Rejoinder," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 500-503, August.
    5. Aranoff, Gerald, 1989. "Output-Flexibility and Diverse Technology," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(2), pages 141-59, May.
    6. Turnovsky, Stephen J, 1973. "Production Flexibility, Price Uncertainty and the Behavior of the Competitive Firm," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 395-413, June.
    7. Hiebert, L Dean, 1989. "Cost Flexibility and Price Dispersion," Journal of Industrial Economics, Wiley Blackwell, vol. 38(1), pages 103-09, September.
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