Profit Maximization and the Threshold Price
AbstractIf the output market is perfectly competitive and the firm’s production function is not concave, an increase in the output price may lead to an explosive increase in firm’s profits at some point. We explore the properties of this point, called a threshold price. We derive the formula for the threshold price under very general conditions and show how it helps to study correctness of the profit maximization problem, without explicit assumptions about returns to scale or convexity/concavity of the production function.
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 University Library of Munich, Germany in its series MPRA Paper with number 20323.
Date of creation: 01 Jan 1998
Date of revision: 29 Jan 2010
threshold price; profit maximization; production function; cost function; Cobb-Douglas function; returns to scale;
Find related papers by JEL classification:
- D2 - Microeconomics - - Production and Organizations
- D4 - Microeconomics - - Market Structure and Pricing
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.:
- First, Z. & Hackman, S. T. & Passy, U., 1993. "Efficiency estimation and duality theory for nonconvex technologies," Journal of Mathematical Economics, Elsevier, vol. 22(3), pages 295-307.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.