Hi Jerry, Re: At 06:52 PM 5/2/01 Wednesday, you wrote: >it depends on (as you suggest) >the price and income elasticity of demand for the >commodity (and here I think Steve is wrong >to simply dismiss these concepts) Check the maths at: >http://www.debunking-economics.com or http://www.stevekeen.net I haven't actually worked out what it means for this particular aspect of neoclassical pricing theory, but the "skinny" thus far is: * The welfare comparison of 'perfectly competitive' firms to monopolies is invalid: conditions for the comparison to be made make the model of PC indeterminate; * The model of PC, with price equal to marginal cost, is invalid: P=MC is not an equilibrium, and both individual firms and the whole industry increase profits if output falls; the only equilibrium, within the parameters of the model, is the same as for monopoly MR=MC; * In a dynamic setting, MR=MC is only profit maximising if quantity never alters with time. Since this is a nonsense condition, in a dynamic setting, firms maximise the rate of growth of profit by setting MR > MC. I expect that the old price and income elasticity arguments will fall foul of the final point. Steve
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