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A Theory of Return-Seeking Firms

We introduce a theory of return-seeking firms to study the differences between this and standard profit-maximising models. In a competitive market return-maximising firms minimise average total costs leading to output choices independent of price movements. We investigate the potential for mark-ups over cost under both competitive and non-competitive market structures and characterise output and input choices under both, amongst a series of other interesting results. We also extend the model in the case of discrete output and input space and show what conditions are required of demand shifts for firms to modify their production plan.

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File URL: http://www.uq.edu.au/economics/abstract/497.pdf
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Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 497.

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Date of creation: 28 Jan 2014
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Handle: RePEc:qld:uq2004:497
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Web page: http://www.uq.edu.au/economics/
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  1. Shea, John, 1993. "Do Supply Curves Slope Up?," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 1-32, February.
  2. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474.
  3. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
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