[OPE-L:5482] Re: Re: Counteracting factors

From: Steve Keen (s.keen@uws.edu.au)
Date: Wed May 02 2001 - 16:08:36 EDT

Hi Jerry,


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.


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