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Stability of Production Prices: A Modification to the Full-Cost Approach

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  • Borissov, Kirill

Abstract

An approach to the problem of the stability of production prices generalizing the full-cost approach is proposed. It is based on comparing current profit rates with a target level: if the current profit rate in a sector is lower (higher) than the target level, the price of the product of this sector increases (decreases). It is proved that this leads to stability of the production prices in two models with fixed capital. In the first model, it is assumed that the author is given a nominal wage rate and that the target profit rate is formed exogenously. In the second model, he is implicitly given a real wage rate and the target profit rate is formed endogenously. Copyright 1999 by Blackwell Publishers Ltd and The Victoria University of Manchester

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  • Borissov, Kirill, 1999. "Stability of Production Prices: A Modification to the Full-Cost Approach," Manchester School, University of Manchester, vol. 67(3), pages 367-391, June.
  • Handle: RePEc:bla:manchs:v:67:y:1999:i:3:p:367-91
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