SSE/EFI Working Paper Series in Economics and Finance
Variability and average profits - does Oi's result generalize?
() and Kaj Martensen
Abstract: Average profits of a price taker are increasing in the
variability of the output price (Oi, 1961). We show that, for the same
reason, average profits of the price taker are increasing in the
variability of the price of inputs. We proceed to establish that the same
holds for a firm with a downward sloping demand curve. Unless the inverse
demand curve of the firm with market power is very convex, the profit
function of the price taker forms an upper limit for the convexity of
profit (assuming constant curvature of costs).
Keywords: cost uncertainty; convexity of profit function; (follow links to similar papers)
JEL-Codes: D80; (follow links to similar papers)
11 pages, September 14, 2000
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