Thursday, August 11, 2011

Profit Assumption online tutoring

Again, a determinate solution to the price output problem in other market forms (perfect competition, monopoly and monopolistic competition) is arrived at by assuming profit maximizing motive on the part of firms. But some economists have challenged the validity of the profit maximizing hypothesis in oligopolistic situations. According to Prof. Rothschild, oligopolists aim at maximizing their security or achieving reasonable amount of stable profits over a long period of time rather than maximizing profits at a time. On the other hand, Prof. Baumol thinks that in oligopolistic circumstances it is legitimate to assume sales maximizing objective on the part of the firms. Some other economists think that managers of oligopolistic firms maximize their own utility function. Still others like R.L. Morris think that firms try to maximize their growth rate. Finally, some economists assert that oligopolists do not maximize anything, they reveal as merely satisfied. In other words, they aim to obtain satisfactory profits rather than maximum profits. All this controversy about the real objective of the firms relates especially to the oligopolistic firms. This controversy about the most probable objective of the oligopolists further introduces interminacy in the analysis of price and output under oligopoly.

In view of above, there is no single determinate solution of the oligopoly problem but a wide variety of possible solutions, each depending upon different assumptions. It is worth nothing as to what exactly economists mean by indeterminacy. When no single solution of a problem is possible, economists generally say that the problem has no determinate solution. thus economists usually speak of indeterminacy where mathematics would speak of a multiplicity of solutions.

In a general way, economists speak of indeterminacy if not enough information is available to give a safe and unambiguous answer to a question before them. If they wish to solve a problem for example, how the price of a certain commodity will change under certain conditions- but find that the data which are assumed to be “given” would permit of two or more (perhaps of an infinite number of) answers, they will say that the problem has no determinate programming solutions.”

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