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Price Decisions and Equilibrium

Author

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  • Jose Encarnacion, Jr.

    (School of Economics, University of the Philippines Diliman)

Abstract

This paper explores the model of the imperfectly competitive firm, facing demand uncertainly, that sets a price on its product so as to maximize the probability of obtaining satisfactory profits. It is a consequence that the price is higher with higher demand or higher costs. With all firms as price setters there is a general price equilibrium where prices are stationary. This entails an equilibrium average level of employment which is likely to be less than full employment. The model accommodates the phenomenon of inflation and increasing unemployment.

Suggested Citation

  • Jose Encarnacion, Jr., 1984. "Price Decisions and Equilibrium," UP School of Economics Discussion Papers 198408, University of the Philippines School of Economics.
  • Handle: RePEc:phs:dpaper:198408
    as

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