Variability and average profits - does Oi's result generalize?
AbstractAverage profits of a price taker are increasing in the variability of the output price (Oi, 1961). We show that, for the same reason, average profits of the price taker are increasing in the variability of the price of inputs. We proceed to establish that the same holds for a firm with a downward sloping demand curve. Unless the inverse demand curve of the firm with market power is very convex, the profit function of the price taker forms an upper limit for the convexity of profit (assuming constant curvature of costs).
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 402.
Length: 11 pages
Date of creation: 14 Sep 2000
Date of revision:
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cost uncertainty; convexity of profit function;
Find related papers by JEL classification:
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-09-18 (All new papers)
- NEP-MIC-2000-09-18 (Microeconomics)
- NEP-TID-2000-09-18 (Technology & Industrial Dynamics)
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- Mohamed Jellal & François-Charles Wolff, 2005.
"Free Entry under Uncertainty,"
Journal of Economics, Springer,
Springer, vol. 85(1), pages 39-63, 07.
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