Economic Review, Vol. 52 No. 7-8, 2001.
Original scientific paper
ALL - ENCOMPASSING APPROACH TO SHORT-RUM PROFIT MAXIMIZATION
Ante Puljić
Abstract
In this paper an all-encompassing approach to the short-run profit maximisation in conditions of perfect competition is taken. For that reason, a direct net profit function is taken both as a function of labour, and as a function of output produced. The first order condition for profit maximisation, derived from the direct net profit function as function of labour, shows directly relation between the two markets and technology: w/p = fL. Relation between the perfect labour market and the perfect output market is expressed by real wage as a relation of unit labour cost and revenue per unit of output, while technology is describedby the marginal product of labour. In order to calculate the total variable cost as a function of given quantities of output, explicitly expressed labour from production function is multiplied by wage determined on the perfect labour market. The first order condition for aprofit maximisation is derived from the direct net profit function as a function of given quantities of output p = dc/dx. After being expressed in p = dC/dL*dL/dC form, this condition is simply reduced to the already mentioned relation between market and technology: w/p =fL. These two ways of expressing connection between market and technology enable us to show, in a unique and organically connected way, the following: production function, inverse labour demand function, the value of average product, alternative ways of expressing the inverse supply function, alternative ways of expressing the total revenue function, total and average cost functions, profit function, four ways to express the maximum net profit. They also make possible to show: distribution of optimal production on the real net profit and real wage fund, distribution of total revenue on the nominal net profit and nominal wagefund, and, finally, the two equilibrium points connected with the perfect labour market andthe perfect output market. The above analyses, after the indirect function of net profit isderived, is enriched with comparative statics, resulting in expected results.
Keywords
Hrčak ID:
28760
URI
Publication date:
15.8.2001.
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