1269:, they are not price takers, but instead either price or quantity setters. Due to the output effect and the price effect, marginal revenue for uncompetitive markets is very different from marginal revenue for competitive firms. In the output effect, more output is sold, quantity sold is higher. In the price effect, this reduces the prices firms charge for every unit they sell, and cut in price reduces revenue on the units it was already selling. Therefore, in uncompetitive market, marginal revenue is less than its price. This allows the firm to set a price which is higher than that which would be found in a similar but more competitive industry, allowing the firms to maintain an economic profit in both the short and long run.
1186:). As the incumbent firms within the industry face losing their existing customers to the new entrants, they are also forced to reduce their prices. Therefore, increased competition reduces price and cost to the minimum of the long run average costs. At this point, price equals both the marginal cost and the average total cost for each good production. Once this has occurred a perfect competition exists and economic profit is no longer available. When this occurs, economic agents outside the industry find no advantage to entering the market, as there is no economic profit to be gained. Then, the supply of the product stops increasing, and the price charged for the product stabilizes, settling into an
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1225:, the number of firms that produce this product will increase. Eventually, the supply of the product will become relatively large, and the price of the product will reduce to the level of the average cost of production. When this finally occurs, all economic profit associated with producing and selling the product disappears, and the initial monopoly turns into a competitive industry. In the case of contestable markets, the cycle is often ended with the departure of the former "hit and run" entrants to the market, returning the industry to its previous state, just with a lower price and no economic profit for the incumbent firms.
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1389:, this point can either be found by looking at these two curves directly, or by finding and selecting the best of the points where the gradients of the two curves (marginal revenue and marginal cost respectively) are equal. In the real world, it is not so easy to know exactly firm's marginal revenue and the marginal cost of last goods sold. For example, it is difficult for firms to know the price elasticity of demand for their good – which determines the MR. In interdependent markets, It means firm's profit also depends on how other firms react,
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company can achieve to justify its continued operation in the market where there is competition. In order to determine if a company has achieved normal profit, they first have to calculate their economic profit. If the company's total revenue is equal to its total costs, then its economic profit is equal to zero and the company is in a state of normal profit. Normal profit occurs when resources are being used in the most efficient way at the highest and best use. Normal profit and economic profit are economic considerations while
1370:, had to get government approval to raise its prices. The government examined the monopoly's costs, and determined whether or not the monopoly should be able raise its price. If the government felt that the cost did not justify a higher price, it rejected the monopoly's application for a higher price. Though a regulated firm will not have an economic profit as large as it would in an unregulated situation, it can still make profits well above a competitive firm in a truly competitive market.
1359:. After a successful appeal on technical grounds, Microsoft agreed to a settlement with the Department of Justice in which they were faced with stringent oversight procedures and explicit requirements designed to prevent this predatory behaviour. With lower barriers, new firms can enter into the market again, making the long run equilibrium much more like that of a competitive industry, with no economic profit for firms and more reasonable prices for consumers.
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1400:. A company may sell goods in several regions or in several countries. Profit is maximized by treating each location as a separate market. Rather than matching supply and demand for the entire company the matching is done within each market. Each market has different competitions, different supply constraints (like shipping) and different social factors. When the price of goods in each market area is set by each market then overall profit is maximized.
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1304:. In this case, the monopolist can set its price at any level it desires, maintaining a substantial economic profit. In both scenarios, firms are able to maintain an economic profit by setting prices well above the costs of production, receiving an income that is significantly more than its implicit and explicit costs.
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at the point where the difference between the two is at its greatest. The goal of maximizing profit is also what leads firms to enter markets where economic profit exists, with the main focus being to maximize production without significantly increasing its marginal cost per good. In markets which do not show
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equilibrium. As a result of firms jostling for market position. Once risk is accounted for, long-lasting economic profit in a competitive market is thus viewed as the result of constant cost-cutting and performance improvement ahead of industry competitors, allowing costs to be below the market-set price.
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It is a standard economic assumption (although not necessarily a perfect one in the real world) that, other things being equal, a firm will attempt to maximize its profits. Given that profit is defined as the difference in total revenue and total cost, a firm achieves its maximum profit by operating
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is a case where barriers are present, but more than one firm is able to maintain the majority of the market share. In an oligopoly, firms are able to collude and limit production, thereby restricting supply and maintaining a constant economic profit. An extreme case of an uncompetitive market is a
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demand. Government intervention in the form of restrictions and subsidies can also create uncompetitive markets. Governments can also intervene in uncompetitive markets in an attempt to raise the number of firms in the industry, but these firms cannot support the needs of consumers as if they were
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The existence of uncompetitive markets puts consumers at risk of paying substantially higher prices for lower quality products. When monopolies and oligopolies hold large portions of the market share, less emphasis is placed on consumer demand than there would be in a perfectly competitive market,
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is often viewed in conjunction with economic profit. Normal profits in business refer to a situation where a company generates revenue that is equal to the total costs incurred in its operation, thus allowing it to remain operational in a competitive industry. It is the minimum profit level that a
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Economic profit can, however, occur in competitive and contestable markets in the short run, since short run economic profits attract new competitors and prices fall. Economic loss forces firms out of the industry and prices rise till marginal revenue equals marginal cost, then reach long run
1182:, until it no longer existed. When new firms enter the market, the overall supply increases. Furthermore, these intruders are forced to offer their product at a lower price to entice consumers to buy the additional supply they have created and to compete with the incumbent firms (see
1366:—it will allow a monopolistic market to occur. The government will regulate the existing uncompetitive market and control the price the firms charge for their product. For example, the old AT&T (regulated) monopoly, which existed before the courts
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In a regulated industry, the government examines firms' marginal cost structure and allows them to charge a price that is no greater than this marginal cost. This does not necessarily ensure zero economic profit for the firm, but eliminates a
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is an economic indicator which measures consumer benefits. The price that consumers pay for a product is not greater than the price they desire to pay, and in this case there will be consumer surplus.
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that occur in its activity. An externality including positive externality and negative externality is an effect that production/consumption of a specific good exerts on people who are not involved.
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Economic profit is the difference between total revenue and total opportunity cost, including both its explicit and implicit components. Economic profit = Total revenue – Total opportunity cost
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A monopolist can set a price in excess of costs, making an economic profit (shaded). The above picture shows a monopolist (only one firm in the industry/market) that obtains a
1276:, which stop other firms from entering into the industry and sapping away profits like they would in a more competitive market. Examples of barriers to entry include
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1138:. The inefficiencies and lack of competition in these markets foster an environment where firms can set prices or quantities instead of being
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includes all costs, both explicit and implicit costs, when analyzing a firm. Therefore, economic profit is smaller than accounting profit.
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equilibrium. If an economic profit was available, there would be an incentive for new firms to enter the industry, aided by a lack of
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1245:. An oligopoly usually has "economic profit" also, but usually faces an industry/market with more than just one firm (they must
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This article is about profit in economics and political economy. For profit in accounting and business, see
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Winters, L.Alan (1987). "THE ECONOMIC CONSEQUENCES OF AGRICULTURAL SUPPORT - A SURVEY".
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refers to the profit a company reports on its financial statements each period.
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profit from a firm's activities is the accounting profit plus or minus any
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may secure long-term solvency in the event of facing potential adversity.
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Price theory and applications: decisions, markets, and information
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1998:"'Profit' variability in for-profit and not-for-profit hospitals"
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toward smaller competitors. For example, in the United States,
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born out of a profit generated on a competitive market basis.
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The existence of economic profits depends on the prevalence of
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industries, and more generally any market which is held to be
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2141:(3rd ed.). New York and London: W.W. Norton and Company.
1559:(5 ed.). South-Western College Publishing. p. 475.
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Normal profit = Revenues – (Implicit costs + Explicit costs)
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Difference between how accountants and economists view a firm
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1288:. These barriers allow firms to maintain a large portion of
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Jack
Hirshleifer; Amihai Glazer; David Hirshleifer (2005).
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that an economic entity has received from its outputs and
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were created to prevent powerful firms from using their
2109:(fourth ed.). Weidenfeld & Nicolson. pp.
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1627:(4 ed.). Pearson Education Limited. p. 397.
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Another significant factor for profit maximization is
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must be used to derive a profit maximizing solution.
1980:"Industry Analysis Report and Forecast, 2021 - 2027"
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1940:, Civil Action No. 98-1232, 12 November 2002.
1918:"Back to Basics: Economic concepts explained"
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1102:Normal profit = Total revenue – Total costs
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1866:Pindyck, Robert; Rubinfeld, Daniel (2015).
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1465:concerns several factors of interest for a
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1870:. Pearson Education Limited. p. 365.
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1265:. Although monopolists are constrained by
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2019:Duménil, Gérard; Lévy, Dominique (1993).
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1623:Hubbard, Glenn; O'Brien, Anthony (2014).
1461:or charitable contributions. All in all,
1219:availability of the product in the market
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1790:The New Palgrave Dictionary of Economics
1424:is an example for negative externality.
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2163:. Cambridge, Massachusetts: MIT Press.
2139:Micro-Economics Theory and Applications
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1625:Essentials of Economics, Global Edition
1313:especially if the good provided has an
1249:available demand at the market price).
1107:Normal profit = Revenues – Total costs
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2150:(3rd ed.). New York: McGraw-Hill.
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1529:Tendency of the rate of profit to fall
1445:, it also fulfills other functions. A
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2159:The Theory of Industrial Organization
2105:An introduction to positive economics
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2182:. New York: Oxford University Press.
2073:Carbaugh, Robert J. (January 2006).
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1349:was initially convicted of breaking
1158:Competitive and contestable markets
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2879:Microfoundations of macroeconomics
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2021:"The Economics Of The Profit Rate"
1959:Pettinger, Tejvan (16 July 2019).
1184:Monopoly profit § Persistence
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2271:Concise Encyclopedia of Economics
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1949:Hirshleifer et al., 2005. p. 160.
1193:The same is likewise true of the
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2276:Library of Economics and Liberty
1978:Regional Outlook (20 May 2021).
1825:. Cengage learning. p. 288.
1798:10.1057/978-1-349-95121-5_1319-2
1781:Desai, Meghnad (16 March 2017).
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2274:(2nd ed.). Indianapolis:
2217:Microeconomics, Global Edition
2193:. Cambridge University Press.
2180:Oxford Dictionary of Economics
1868:Microeconomics, Global Edition
1843:Microeconomics, Global Edition
1792:. Vol. 2. pp. 1–14.
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1404:Other applications of the term
1:
2050:Albrecht, William P. (1983).
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1215:Monopoly Profit § Persistence
1052:of its inputs, also known as
779:Critique of political economy
437:Critique of political economy
2146:LeRoy Miller, Roger (1982).
2128:Chiller, Bradley R. (1991).
1199:monopolistically competitive
1172:perfectly competitive market
1144:perfectly competitive market
829:Periodizations of capitalism
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2824:Civil engineering economics
2809:Statistical decision theory
2449:Income elasticity of demand
2101:Lipsey, Richard G. (1975).
1925:International Monetary Fund
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525:Simple commodity production
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2459:Price elasticity of supply
2454:Price elasticity of demand
2444:Cross elasticity of demand
1783:"Profit and Profit Theory"
1467:for-profit economic entity
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1356:United States v. Microsoft
1243:(monopoly) economic profit
1118:Economic profits arise in
1044:is the difference between
834:Perspectives on capitalism
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2215:Perloff, Jeffrey (2018).
2137:Mansfield, Edwin (1979).
1841:Perloff, Jeffrey (2018).
1647:Lipsey, 1975. pp. 285–59.
1553:Arnold, Roger A. (2001).
2515:Income–consumption curve
2132:. New York: McGraw-Hill.
1821:Mankiw, Gregory (2016).
1608:Mankiw, Gregory (2013).
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105:Economic interventionism
2849:Industrial organization
2250:Man, Economy, and State
2130:Essentials of Economics
1916:Rowe, James L. (2017).
1823:principles of economics
1762:Saloner, Garth (2001).
1610:Principles of Economics
1499:Inverse demand function
1453:may be used to finance
1308:Government intervention
774:Criticism of capitalism
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1174:once it has reached a
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804:Exploitation of labour
515:Primitive accumulation
2819:Engineering economics
2414:Cost–benefit analysis
2155:Tirole, Jean (1988).
1961:"Profit Maximisation"
1893:OECD Economic Studies
1656:Lipsey, 1975. p. 217.
1347:Microsoft Corporation
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1233:Uncompetitive markets
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1126:and have significant
1067:It is different from
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982:Capitalism portal
794:Culture of capitalism
749:Capitalist propaganda
505:Industrial Revolution
495:Commercial Revolution
2636:Price discrimination
2530:Intertemporal choice
2178:Black, John (2003).
2079:. Cengage Learning.
1764:Strategic Management
1489:Economic value added
1459:capital expenditures
1398:market fractionation
1148:economic equilibrium
1073:financial statements
957:Right-libertarianism
887:Classical liberalism
854:Venture philanthropy
490:Capitalism and Islam
485:Age of Enlightenment
80:Capital accumulation
16:Concept in economics
2947:Business portal
2884:Operations research
2711:Substitution effect
1730:LeRoy Miller, 1982.
1612:. CENGAGE Lesrning.
1509:Profitability index
1443:shareholder returns
1380:Profit maximization
1368:ordered its breakup
1209:market power for a
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994:Business portal
110:Economic liberalism
100:Competitive markets
21:Profit (accounting)
2525:Indifference curve
2493:Goods and services
2434:Economies of scope
2429:Economies of scale
2266:David R. Henderson
1418:consumer surpluses
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754:Capitalist realism
145:Goods and services
125:Fictitious capital
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2927:Political economy
2726:Supply and demand
2606:Pareto efficiency
2258:Thurow, Lester C.
2200:978-0-521-81864-3
2086:978-0-324-31461-8
1807:978-1-349-95121-5
1534:Value (economics)
1457:with significant
1439:shareholder yield
1343:predatory pricing
1274:barriers to entry
1223:barriers to entry
1180:barriers to entry
1128:barriers to entry
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1092:accounting profit
1069:accounting profit
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367:Economic theories
200:Supply and demand
135:Free price system
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1364:natural monopoly
1335:Competition laws
1099:
1096:
1022:
1015:
1008:
992:
991:
980:
979:
784:Critique of work
759:Capitalist state
442:Critique of work
325:Regulated market
227:Economic systems
180:Private property
130:Financial market
120:Entrepreneurship
115:Economic surplus
28:
27:
2993:
2992:
2988:
2987:
2986:
2984:
2983:
2982:
2968:
2967:
2966:
2961:
2939:
2931:
2898:
2777:
2419:Deadweight loss
2356:Consumer choice
2334:
2329:
2286:
2245:Murray Rothbard
2237:
2227:
2205:
2203:
2201:
2171:
2121:
2091:
2089:
2087:
2066:
2046:
2041:
2040:
2030:
2028:
2017:
2013:
2003:
2001:
1996:
1995:
1991:
1976:
1972:
1957:
1953:
1948:
1944:
1936:
1932:
1920:
1914:
1910:
1902:10.1.1.412.1477
1889:
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1646:
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1606:
1602:
1597:
1584:
1571:
1569:
1567:
1551:
1547:
1542:
1475:
1451:Capital surplus
1406:
1387:interdependence
1382:
1376:
1328:monopoly profit
1310:
1267:consumer demand
1235:
1160:
1124:non-competitive
1026:
986:
974:
967:
966:
872:
864:
863:
839:Post-capitalism
744:Anti-capitalism
739:
731:
730:
626:
618:
617:
538:
530:
529:
480:
472:
471:
368:
360:
359:
350:State-sponsored
228:
220:
219:
85:Capital markets
50:
24:
17:
12:
11:
5:
2991:
2981:
2980:
2963:
2962:
2960:
2959:
2949:
2936:
2933:
2932:
2930:
2929:
2924:
2922:Macroeconomics
2919:
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2621:Price controls
2613:
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2596:
2591:
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2540:Market failure
2537:
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2332:Microeconomics
2328:
2327:
2320:
2313:
2305:
2299:
2298:
2285:978-0865976658
2284:
2254:
2236:
2235:External links
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1984:GLOBE NEWSWIRE
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1770:. p. 216.
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1471:
1447:target surplus
1405:
1402:
1378:Main article:
1375:
1372:
1351:Anti-Trust Law
1339:economic power
1309:
1306:
1284:, and certain
1234:
1231:
1197:equilibria of
1159:
1156:
1146:when long-run
1114:
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1028:
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824:Market economy
821:
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738:Related topics
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155:Invisible hand
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65:Business cycle
62:
57:
51:
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15:
9:
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4:
3:
2:
2990:
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2799:Computational
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2735:Law of demand
2732:
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2727:
2724:
2722:
2721:Social choice
2719:
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2706:Excess supply
2703:
2700:
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2692:Risk aversion
2690:
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2647:
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2626:Price ceiling
2624:
2622:
2619:
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2617:
2614:
2612:
2609:
2607:
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2600:
2597:
2595:
2592:
2590:
2587:
2583:
2582:Complementary
2580:
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2570:
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2365:non-convexity
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2120:0-297-76899-9
2116:
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2065:0-13-224345-8
2061:
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2015:
1999:
1993:
1985:
1981:
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1962:
1955:
1946:
1939:
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1504:Profit motive
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1087:Normal profit
1084:
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1065:
1063:
1059:
1055:
1054:surplus value
1051:
1047:
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880:
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822:
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815:
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809:Globalization
807:
805:
802:
800:
797:
795:
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790:
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775:
772:
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769:Crisis theory
767:
765:
762:
760:
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734:
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613:Technological
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238:Authoritarian
236:
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208:
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205:Surplus value
203:
201:
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185:Privatization
183:
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38:
34:
30:
29:
26:
22:
2889:Optimization
2874:Mathematical
2834:Experimental
2829:Evolutionary
2814:Econometrics
2672:Public goods
2666:
2646:Price system
2641:Price signal
2555:Monopolistic
2424:Distribution
2339:Major topics
2269:
2253:, Chapter 8.
2248:
2216:
2204:. Retrieved
2189:
2179:
2158:
2147:
2138:
2129:
2104:
2090:. Retrieved
2075:
2053:
2029:. Retrieved
2024:
2014:
2002:. Retrieved
1992:
1983:
1973:
1964:
1954:
1945:
1933:
1924:
1911:
1892:
1886:
1867:
1861:
1842:
1822:
1816:
1789:
1776:
1763:
1757:
1652:
1643:
1624:
1618:
1609:
1603:
1598:Black, 2003.
1577:
1570:. Retrieved
1555:
1548:
1432:
1426:
1409:
1407:
1397:
1395:
1383:
1374:Maximization
1361:
1354:
1333:
1311:
1294:
1290:market share
1271:
1263:market power
1252:
1246:
1227:
1210:
1206:
1192:
1169:
1140:price-takers
1117:
1086:
1085:
1066:
1041:
1039:
859:Wage slavery
799:Evergreening
510:Mercantilism
457:Neoclassical
285:Mercantilist
262:
195:Rent seeking
189:
160:Visible hand
25:
2839:Game theory
2804:Development
2751:Uncertainty
2631:Price floor
2611:Preferences
2550:Competition
2520:Information
2483:Externality
2466:Equilibrium
2407:Transaction
2385:Opportunity
2346:Aggregation
2206:20 December
1519:Superprofit
1494:Externality
1455:investments
1435:supply side
1391:game theory
1302:substitutes
1286:zoning laws
1282:land rights
1211:short while
1203:contestable
1188:equilibrium
1136:oligopolies
1050:total costs
942:Objectivism
927:Libertarian
844:Speculation
764:Consumerism
598:Progressive
537:Development
520:Physiocracy
467:Supply-side
275:Libertarian
253:Free-market
233:Anglo-Saxon
215:Wage labour
170:Marginalism
140:Free market
95:Corporation
2869:Managerial
2789:Behavioral
2662:Production
2599:Oligopsony
2439:Elasticity
2351:Budget set
2044:References
1768:John Wiley
1132:monopolies
1122:which are
1077:accountant
922:Liberalism
907:Humanistic
892:Democratic
871:Ideologies
706:Schumpeter
452:Monetarist
383:Chartalism
330:Regulatory
305:Neoliberal
258:Humanistic
41:Capitalism
2910:Economics
2782:Subfields
2677:Rationing
2594:Oligopoly
2589:Monopsony
2577:Bilateral
2510:Household
2361:Convexity
2294:237794267
2262:"Profits"
2092:3 October
2054:Economics
1897:CiteSeerX
1556:Economics
1422:Pollution
1315:inelastic
1297:oligopoly
1259:oligopoly
1207:temporary
1081:economist
962:Third Way
952:Privatism
912:Inclusive
897:Dirigisme
691:von Mises
578:Illiberal
558:Corporate
553:Community
500:Feudalism
410:Keynesian
400:Classical
243:Corporate
55:Austerity
2972:Category
2957:Category
2903:See also
2794:Business
2766:Marginal
2761:Expected
2702:Shortage
2697:Scarcity
2572:Monopoly
2478:Exchange
2390:Implicit
2380:Marginal
2260:(2008).
1572:14 April
1473:See also
1433:For the
1255:monopoly
1195:long run
1176:long run
1152:industry
1062:implicit
1058:explicit
789:Cronyism
701:Rothbard
676:Marshall
661:Friedman
593:Merchant
548:Consumer
543:Advanced
378:Austrian
373:American
300:National
295:Monopoly
248:Dirigist
150:Investor
60:Business
49:Concepts
33:a series
31:Part of
2915:Applied
2894:Welfare
2756:Utility
2716:Surplus
2655:Pricing
2567:Duopoly
2560:Perfect
2503:Service
2471:General
2375:Average
2268:(ed.).
2031:2 April
2027:. Ideas
2004:2 April
1278:patents
1130:, i.e.
1120:markets
1064:costs.
1046:revenue
917:Liberal
877:Anarcho
814:History
646:Malthus
641:Ricardo
603:Rentier
588:Marxist
568:Finance
479:Origins
447:Marxist
395:Chicago
355:Welfare
315:Private
270:Liberal
90:Company
75:Capital
2978:Profit
2740:Supply
2731:Demand
2667:Profit
2535:Market
2397:Social
2292:
2282:
2223:
2197:
2167:
2117:
2083:
2062:
1899:
1874:
1849:
1804:
1631:
1563:
1410:social
1042:profit
716:Weaver
711:Veblen
686:Walras
681:Pareto
671:Keynes
573:Global
340:Social
310:Nordic
280:Market
190:Profit
2859:Labor
2844:Green
2616:Price
2498:Goods
2488:Firms
2264:. In
2025:Books
1921:(PDF)
1786:(PDF)
1540:Notes
1247:share
1213:(See
1075:. An
726:Coase
721:Weber
666:Hayek
631:Smith
563:Crony
425:Post-
345:State
335:Rhine
290:Mixed
210:Value
175:Money
2773:Wage
2682:Rent
2650:Free
2402:Sunk
2370:Cost
2363:and
2290:OCLC
2280:ISBN
2221:ISBN
2208:2010
2195:ISBN
2165:ISBN
2115:ISBN
2113:–7.
2094:2010
2081:ISBN
2060:ISBN
2033:2023
2006:2023
1872:ISBN
1847:ISBN
1802:ISBN
1629:ISBN
1574:2021
1561:ISBN
1408:The
1134:and
1060:and
696:Rand
656:Marx
636:Mill
583:Late
415:Neo-
2864:Law
2247:'s
2111:214
1794:doi
1416:or
1295:An
1257:or
932:Neo
902:Eco
651:Say
420:New
388:MMT
320:Raw
2974::
2288:.
2278:.
2243:,
2023:.
1982:.
1963:.
1923:.
1895:.
1831:^
1800:.
1788:.
1766:.
1735:^
1713:^
1689:^
1661:^
1585:^
1576:.
1469:.
1280:,
1190:.
1154:.
35:on
2742:/
2733:/
2704:/
2648:/
2324:e
2317:t
2310:v
2296:.
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2210:.
2173:.
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2096:.
2068:.
2035:.
2008:.
1986:.
1967:.
1927:.
1905:.
1880:.
1855:.
1810:.
1796::
1637:.
1330:.
1021:e
1014:t
1007:v
23:.
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