Substitutability, Cost Effectiveness, and Output (revised 23 April 2012; formerly titled “Product Change and Output Invariance” and then “Output Invariance Across Products”)
AbstractThis note gives a method that can sometimes be used to find the long-run equilibrium output of a firm operating under imperfect competition and which differs from standard methods of output determination. Let X be a product supplied under oligopoly or monopolistic competition and suppose that, by changing certain properties of X, we arrive at a new product, Y, which is sold under perfect competition. For example, Y might be a generic version of a good or service, while X is a differentiated version. Under a basic assumption given in the paper, this firm’s equilibrium output of X will then be where the average cost of Y reaches its minimum. At the level of the firm, the equilibrium outputs of the two goods will be the same, in other words, as long as each product is viable. While this outcome is not consistent with a first-best welfare maximum, it does have a desirable welfare property.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 04-18.
Length: 18 pages
Date of creation: 29 Nov 2004
Date of revision: 09 Oct 2012
Publication status: Published: Carleton Economic Papers
Contact details of provider:
Postal: 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-12-12 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
- Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Renee Lortie).
If references are entirely missing, you can add them using this form.