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4 votes
Accepted

Net product marginal in Acemoglu's article "Modeling inefficient institutions"

Calculate the first-order-condition (FOC) wrt labour: $$\begin{align}\frac{\partial}{\partial l_t^j} \left( \frac{1 - \tau_t^j}{1 - \alpha} (A^j)^\alpha (k_t^j)^{1-\alpha} (l_t^j)^\alpha - w_t l_t^j - ...
uninterestedacademic's user avatar
3 votes
Accepted

Stability vs profit maximisation

Stability is a very broad subject, and in general, has nothing to do with profit maximization. Obviously, the results vary from model to model, and it is possible that in a specific model profit ...
BakerStreet's user avatar
  • 3,812
2 votes

Profit Maximizing with a competitive fringe

The question is a bit unclear to me, but I am guessing this is what we need to do. We can think of the situation as a dynamic game where the competitive firm takes the price as given and makes a ...
mynameparv's user avatar
2 votes

If wage is equal to P x MPL then where is the profit of the firm?

It depends. If production has decreasing returns to scale, then there will normally be profits. Decreasing returns to scale means that marginal product of labour decreases with labor. Let $x$ be the ...
tdm's user avatar
  • 12.2k
2 votes

Stackelberg model with 3 symmetric firms

Suppose $q_3(q_1,q_2)$ denotes the reaction function of firm 3, and $q_2(q_1)$ denotes the reaction function of firm 2. To determine firm 1's choice, maximise the profit of firm 1 subject to the ...
Amit's user avatar
  • 8,891
1 vote

Deriving FOC with non-substitable goods

Seems like one would make use of the fact that $M_f$ and $L_f$ are functions of $Q_f$, while the input prices are functions of the respective inputs, then take the first derivative of the goal ...
Giskard's user avatar
  • 29.2k
1 vote

If wage is equal to P x MPL then where is the profit of the firm?

A less mathy version of tdm's answer: Marginal means marginal, i.e. based on the last (in this case labor unit's) measurement. Assume a price of 10\$. If there are a 100 workers, with the first one ...
Giskard's user avatar
  • 29.2k
1 vote

Problem with Optimizing Profit in Log-Linear Demand Model

Your objective function is additive separable between $myPrice$ and $competitorPrice$. This means that you can write: $$ Objective = f(myPrice) + g(competitorPrice). $$ For some functions $f$ and $g$. ...
tdm's user avatar
  • 12.2k
1 vote
Accepted

Profit Functions are Homogeneous of Degree 1 in all prices

Profits in nominal terms double when the price of both inputs and output double i.e. Nominal profits are homogeneous of degree 1 in all the prices. However, if we look at profits in real terms i.e. ...
Amit's user avatar
  • 8,891

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