Abstract
In this paper, input market equilibrium effects are incorporated into an analysis of output price fluctuations. In particular, it is shown that an increase (decrease) in output price may not necessarily lead to an increase (decrease) in the shortrun profit of a firm operating in a competitive product market. The firm's profit may not necessarily be convex in output price. Hence,ex-post flexibility in production does not guarantee the preference for price instability by risk-neutral firms. Finally, in longrun equilibrium, a mean-preserving spread in output price may increase or reduce the equilibrium number of firms.
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