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Profit Maximization and the Threshold Price

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  • Mynbaev, Kairat

Abstract

If 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.

Suggested Citation

  • Mynbaev, Kairat, 1998. "Profit Maximization and the Threshold Price," MPRA Paper 20323, University Library of Munich, Germany, revised 29 Jan 2010.
    • Handle: RePEc:pra:mprapa:20323
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    File URL: https://mpra.ub.uni-muenchen.de/20323/1/MPRA_paper_20323.pdf
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    References listed on IDEAS

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    1. 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.
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    More about this item

    Keywords

    threshold price; profit maximization; production function; cost function; Cobb-Douglas function; returns to scale;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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