Conditions For Profit Maximization Research Articles

Economic model of power generation enterprise

These days the economic system of any scale faces a challenge not only to best meet the needs of consumers, but also to ensure their comfortable living conditions (especially agricultural), that is, preserve the environment and use natural resources wisely. Power generation enterprises make a significant contribution to the violation of the environmental situation. This is partly due to the alienation of territories that could be used for other human activities, as well as significant emissions into the atmosphere. A power generation enterprise, compared with organizations of other types of activity, is characterized by the method of generating electricity which implies not the impact on the material and raw materials and the production of economic benefits, but the conversion of natural energy into electrical energy. These models are of a general abstract nature and are more applicable to organizations producing tangible economic benefits, rather than the generation of electrical energy, which is the key economic benefit, though, conventionally tangible one. Existing microeconomic models do not show specifics of their functioning – the scale of the enterprise and the conditions for profit maximization. The economic models of a power generation enterprise, the specifics of its functioning and profit-making are presented in the article.

Dual reference effect and dynamic control of quality improvement and low-carbon effort under nonlinear demand

Businesses often engage in quality improvement efforts to enhance their competitiveness in the market and increase their product sales. However, in a low-carbon economy, it is crucial for enterprises to incorporate green development into their business strategies. This paper uses optimal control theory to study the dynamic control problem of enterprise quality improvement and low carbon input under consumer reference quality and reference low carbon, analyzes and compares the input decisions under two conditions of profit maximization by the enterprise and social welfare maximization by the government, explores the system steady-state equilibrium and performs simulation analysis. It is shown that (i) there is a unique saddle-point equilibrium of the system in both cases and it depends on the discount rate and memory parameters (ii) the higher the consumer loyalty to product quality or low-carbon attributes, the corresponding instantaneous investment rate increases (iii) there is a cross-effect of reference quality and reference low-carbon on the firm's decision, and the impact of product quality on the firm's profit is higher than that of low-carbon attributes (iv) the social welfare maximization conditions are all higher than the investment in the firm's profit maximization conditions. Based on this, enterprises can make investment decisions more rationally, while also helping the government conduct macroeconomic regulation and control.

Making airline coalition frequent-flyer programs profitable: An analytical investigation

This paper investigates the conditions for airline coalition frequent flyer program (FFP) to exist. A stylized economic model is proposed to analyze both stand-alone and coalition FFP. With the help of numerical analysis, we identify the profit-maximizing conditions for both types of FFP and recognize critical thresholds for a profitable coalition FFP. We find that a coalition FFP would not be profitable if the reward value were far less than the total price of airfare and partner product. In addition, the optimal reward of a coalition FFP will increase as the total price rise. Finally, coalition FFP is unlikely to be more socially efficient than stand-alone FFP. Based on the analytical results, we provide policy implications and highlight the importance of optimal rewards, partner price coordination and market supervision for the successful and profitable airline coalition FFP.

Nonlinear dynamics and adjunct profits in two boundedly rational models of monopoly

This paper studies the dynamic characteristics of a nonlinear monopoly model involving two boundedly rational monopolists with different information and knowledge on the market demand. The ℓ-monopolist knows only the actual values of output and the profit in the immediate past two periods, whereas the k-monopolist knows the marginal revenue but lacks computational ability to solve the profit maximization conditions. The price and cost functions are assumed to be cubic. These monopolists adopt a gradient-based method to determine their productions. For the dynamics of the ℓ -monopolist, the stability conditions and the explicit forms of the period-4 periodic points are obtained. The k-monopolist loses stability through a supercritical Neimark–Sacker bifurcation and a period-doubling bifurcation when the expected demand is formed with the past data. For comparison of the economic gains of the monopolists, the average profit associated with the nonlinear dynamics are calculated. It is numerically demonstrated that more information does not necessarily mean more profit.

Impact of Capital Structure and Liquidity Conditions on the Profitability of Pharmaceutical Sector of Pakistan

This study was conducted to find the impact of capital structure and liquidity condition on the profitability of pharmaceutical firms listed with Pakistan Stock Exchange (PSX). The dataset was comprised of eleven years 2010 to 2021. To assess profitability level, to dimensions return on assets (ROA) and gross profit margin (GPM) were used. The capital structure was measured through debt to equity ratio (DER) and debt to total funds (DTF). The liquidity level was measured through current ratio (CR) and acid test ratio (ATR). The OLS regression, fixed and random effect models were used for analysis. The findings proved that high debt to equity ratio significantly and negatively affect the profitability. The liquidity conditions have positive association with profitability of firms. The study suggested that owners and company managers should use optimal value of debt and liquidity conditions for profit maximization and to reduce the cost associated with debt capital.

The Production Function for Housing: Evidence from France

We propose a new nonparametric approach to estimate the production function for housing. Our estimation treats output as a latent variable and relies on a first-order condition for profit maximization combined with a zero-profit condition. More desirable locations command higher land prices and, in turn, more capital to build houses. For parcels of a given size, we compute housing production by summing across the marginal products of capital. For newly built single-family homes in France, the production function for housing is close to constant returns and is well, though not perfectly, approximated by a Cobb-Douglas function with a capital elasticity of 0.65.

Platform pricing redux

AbstractPlatforms such as Airbnb, Amazon, Apple iOS, eBay, Microsoft Windows, and Uber are ubiquitous. The two‐sided nature of platform markets, however, requires a reconsideration of the conditions for profit maximization and understanding of how platforms operate. Profit‐maximization in two‐sided markets is characterized as an intuitive extension of the inverse elasticity pricing rule (Lerner index). This is further expressed in terms of the participants' primitives: users' reservation values and the platform's marginal cost. Differences between one‐ and two‐sided markets are demonstrated and discussed.

Effects of input capacity constraints on food quality and regulation mechanism design for food safety management

Input capacity constraints means a firm cannot make its output decision based on the first - order optimal condition of profit maximization because it does not have enough inputs. Input capacity constraints have a significant effect on production quality and firm competition, especially on food safety management. This paper tries to provide a new perspective for quality operation in supply chain management. It also designs a new mechanism for quality regulation. After distinguishing between quantity-sensitive input capacity constraints and quality-sensitive input capacity constraints, this paper demonstrates a theoretical analysis about the impact of input capacity constraints on food quality and quality regulation by game theory. The results show that both kinds of capacity input constraints lead to a lower level of output, quality and consumer surplus, but a higher level of prices. In this study, we design a quality regulation to stimulate the growth of high quality food products. More importantly, this paper proves that reward is more effective in food quality guarantee programs than punishment or fine based programs. The conclusions are helpful for addressing food safety problems for both the supervisors and firms.

Examining the relationship between rent and political expenditure: Using rent information obtained from financial statements

Abstract. This study aims to develop a standard method for measuring the rent of an individual enterprise from its financial statement data and to analyze the relationship between rents of companies and their political and R&D expenditures. This method will allow for the decomposition of various causes that yield rents by regression analyses. This study set the equation of the first-order condition of profit maximization as a function of the capital amount, satisfying both short-term and long-term optimal conditions, and obtained the mark-up rate that can realize the production level in monopolistic equilibrium as a competitive equilibrium. The average rents for 29 industries in Japan were calculated using a linear algebraic method from 30 years’ time-series financial statement data. Moreover, this study also managed to substitute production factors for pseudo-production factors applicable to global companies whose breakdown of manufacturing and sales costs are usually not disclosed. These rents are regressed by political and R&D expenditures of each industry. In several models, political expenditure has a significant relationship with rent, although R&D expenditure does not. Keywords. Rent, Political expenditure, Financial statement, R&D expenditure, Japanese industries. JEL. D72, P16, D22, C61, M41.

A structural model of cost pass-through: the case of the US yogurt retailing

We provide a structural framework for retail cost pass-through based on a neoclassical inverse demand model and retail profit maximization conditions. Unlike previous literature where game-theoretic structures are imposed on cost pass-through, our framework allows for estimating cost pass-through and the degree of market competition simultaneously. Further, our model incorporates potential cross-brand effects representing demand substitution and strategic complementarity effects. Our model supplements the traditional reduced-form approach to pass-through and is applicable in environments, where the lack of brand-level cost data renders reduced-form analysis infeasible. The empirical value of our model is illustrated in an econometric analysis of retail pass-through for national and store brand yogurt. Our results indicate that: (1) market competition has a positive impact on own-brand cost pass-through, especially for national brands, and (2) overlooking cross-brand effects results in biased own-brand pass-through estimates. Finally, we provide a graphical illustration of the relationship between cost pass-through and market competition.

Integral equation of the Volterra type: an application to a firm-sponsored off-the-job training

This paper is concerned with deriving, using the Volterra integral equation, a production function for a single product firm financing off-the-job training from its revenue from output. The short-run scenario where labour is the only variable factor of production is studied within the ambit of the law of diminishing returns and the condition for profit-maximization. The study utilizes the Cobb-Douglas production function wherein capital is fixed as a theoretical underpinning. The results indicate that the production function of the firm is a transcendental function and that the proportion of output required to finance the training lies within an interval with a definite upper bound.

Farm-level bio-economic modeling of water and nitrogen use: Calibrating yield response functions with limited data

Integrating agronomic information into economic models is required for simulating farming systems so as to better determine how agriculture can adapt to a continuously changing global economic and physical environment. In this respect, farm level mathematical programming bio-economic models can provide valuable insights for examining current and future pressures on resource use. Although a necessary condition for the effective use of such models is their calibration against observed data on input use, this information may not always be available, particularly at higher geographical scales. Imperfect or missing input markets pose an additional challenge to modelers. To overcome these difficulties, we present a theoretical framework for calibrating water-nitrogen yield response functions, which are used to represent the bio-physical aspects of crop production in bio-economic farm models at the European Union level. The method is based on the simulation results of an agronomic model, while the calibration criterion derives from the first-order conditions for farmers' profit maximization and utilizes all available information from the Farm Accountancy Data Network. The method is tested on maize-producing farms in two regions in France.

Theory of the Firm: A Reformulation with Primary Factors of Production and Procurement of Ingredient Inputs

Abstract. This paper reformulates the neoclassical theory of the firm by distinguishing two types of inputs: (1) the primary factors of production (labor, capital, etc.) and (2) ingredient inputs (intermediate goods, raw materials, and services). The production function is defined on the space of the primary factors while ingredient inputs, as required by production technologies, are procured externally from other firms. Firms maximize profits subject to the production function as well as to the ingredient input requirement functions. We analyze how the optimal level of production and the optimal employment of factor services are determined when the cost of the acquisition of ingredient inputs is counted explicitly as part of the total cost of production. The first order condition of profit maximization requires that the marginal value-added product of an employed primary factor be equal to its price, and the second order condition is stated in terms of the negative definiteness of the Hessian of the value-added function. Cost minimization requires that the marginal cost of production be equal to the sum of an incremental cost of factor services and an incremental cost of ingredient inputs that are procured. The optimum level of production and the optimal use of the primary factors both respond to changes in the prices of ingredient inputs. The paper also shows: the zero degree homogeneity of factor demand and output supply functions, the linear homogeneity of the value-added function, Shephard’s lemma, the interpretation of the Lagrangian multiplier in cost minimization, the nonlinearity of the iso-cost surfaces, and the concavity of the cost function. Keywords. Primary factors, Ingredient inputs, Production function, Value-added function, Marginal value-added product. JEL. D01, D21, D24.

Directional distance functions: Optimal endogenous directions

A substantial literature has dealt with the problem of estimating multiple-input and multiple-output production functions, where inputs and outputs can be good and bad. Numerous studies can be found in the areas of productivity analysis, industrial organization, labor economics, and health economics. While many papers have estimated the more restrictive output- and input-oriented distance functions, here we estimate a more general directional distance function. A seminal paper on directional distance functions by Chambers (1998) as well as papers by Färe et al. (1997), Chambers et al. (1998), Färe and Grosskopf (2000), Grosskopf (2003), Färe et al. (2005), and Hudgins and Primont (2007) do not address the issue of how to choose an optimal direction set. Typically the direction is arbitrarily selected to be 1 for good outputs and −1 for inputs and bad outputs. By estimating the directional distance function together with the first-order conditions for cost minimization and profit maximization using Bayesian methods, we are able to estimate optimal firm-specific directions for each input and output which are consistent with allocative and technical efficiency. We apply these methods to an electric-utility panel data set, which contains firm-specific prices and quantities of good inputs and outputs as well as the quantities of bad inputs and outputs. Estimated firm-specific directions for each input and output are quite different from those normally assumed in the literature. The computed firm-specific technical efficiency, technical change, and productivity change based on estimated optimal directions are substantially higher than those calculated using fixed directions.

Oligopsônio dos Frigoríficos: Uma Análise Empírica de Poder de Mercado

Este estudo tem por objetivo analisar a cadeia de carne bovina de corte no Brasil e determinar, empiricamente, se há poder de mercado na relação comercial entre produtores rurais e frigoríficos. Com esse fim, procedeu-se em duas etapas. Primeiro, fez-se uma caracterização da estrutura da indústria. Concluiu-se que, de fato, a estrutura se aproxima de um oligopsônio, com potencial para exercício de poder de mercado. Na linha da Nova Organização Industrial Empírica (NOIE), o artigo desenvolve um novo método econométrico para auferir poder de mercado em indústrias oligopsônicas. Esse modelo procura superar uma limitação tradicional da literatura, na qual os resultados são sensíveis à hipótese feita sobre a tecnologia de produção. Usando a condição de maximização de lucro dos frigoríficos e dados mensais por um período de 14 anos para o estado de São Paulo, encontrou-se evidência de poder de mercado fraco no setor, o que permite descartar a hipótese de comportamento de cartel. Estimativas alternativas apenas reforçam a robustez desse resultado. Além disso, o poder de mercado não aumentou em anos recentes, quando a concentração no setor aumentou substancialmente.

A Structural Model of the Analysis of Retail Market Power: The Case of Fluid Milk

We derive a structural model of firm behavior that is composed of the Generalized Quadratic Almost Ideal Demand System to represent both consumers’ milk preferences and firm profit maximization conditions that allow for a range of competitive scenarios. The importance of this specification is found in its fuller representation of consumer preferences, as opposed to the Linear Approximate Almost Ideal Demand System used in previous analyses. We apply this structural framework to investigate retailer conduct in the sale of beverage milk in a U.S. market using product‐level data. Our Lerner Index estimates show that retailers are not perfectly competitive. However, this deviation is small.

THE ECONOMICS OF SMALL-SCALE SOFT SHELL CRAYFISH PRODUCTION

A soft shell crayfish operation consists of an indoor molting system for immature crayfish. The molted crayfish could be sold as food or bait. Such systems have been operated on a small-scale in Kentucky and neighboring states, although traditionally the industry has been centered in Louisiana. This article investigated profit-maximizing management conditions and economic feasibility of a small-scale soft shell crayfish operation. Results showed that a minimum facility size of 25–30 culture trays was essential for realizing a profit by selling product to bait shops. This facility size was also amenable to be operated by two full-time workers, making family-run enterprises a strong possibility. Other results showed that larger facilities, with more than 50 culture trays, were necessary to reduce the minimum equity in fixed investment to be less than 70%. Direct marketing at retail prices is often the only profitable option for small-scale aquaculture; this article gives an example of a small-scale aquaculture operation that can simultaneously supply different markets at a profit.

Per Mile Emissions Taxes And Lump Sum Emissions Taxes: A Comparative Study Using A Mathematical Approach To Demand Estimation

The primary purpose of this study was to utilize the mathematical approach to demand estimation developed in Culp (2004) to compare two common emissions based taxes. The model assumes Cournot-Nash behavior and divides the automobile market into five homogenous segments. A global optimization program is utilized to mathematically determine the range of values the coefficients of demand must take in each segment to satisfy market equilibrium. Simulations were performed to examine the comparative impact on social welfare of both the per mile emission tax (PMET) and the lump sum emission tax (LSET) in the automotive and travel markets. In the simulations, a global optimization program allows market conditions to change while holding constant the level of pollution reduction, satisfying the other constraints of the model, and satisfying each firm’s first order profit-maximizing conditions. The simulation found that in five of the thirty-two quarters examined, and regardless of market conditions, that the LSET produced more gains from trade. In simulations of the remaining quarters, the outcomes varied depending upon the cross price elasticity of vehicle demand and upon the sensitivity of consumers to vehicle operating cost. The simulations also show that an approximately 20 percent reduction in emissions from new vehicles is achieved by the LSET with a median tax rate of $155.74 per gram of average CO emissions per mile. Consequently, a vehicle that emits an average of two grams of CO per mile would pay a one-time fee of $311.48. The median tax rate required by the PMET is $0.00666 per gram per mile. Accordingly, a vehicle that emits two grams of CO per mile on average would pay $0.0103 per mile or $1332.46 for every 100,000 miles traveled. The difference between the two tax rates, required to achieve the same pollution reduction goal, is likely the result of consumer’s insensitivity to the rise in vehicle operating costs caused by the PMET. This result is consistent with the view that consumers highly discount future payments.

Profit Maximization In The National Football League

<p class="MsoBodyText" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-style: normal; font-size: 10pt;"><span style="font-family: Times New Roman;">This paper investigates if NFL teams maximize profits with respect to ticket price.<span style="mso-spacerun: yes;">  </span>We modify Ferguson et al’s (1991) NHL paper as it pertains to the NFL.<span style="mso-spacerun: yes;">  </span>A profit function incorporating variable revenue and cost factors such as gate receipts and player expenses is employed.<span style="mso-spacerun: yes;">  </span>A systems model is used as the estimation procedure to identify the determinants of ticket prices for NFL franchises.<span style="mso-spacerun: yes;">  </span>The model implies a Kuhn-Tucker based cross equation parameter restriction that result from attendance capacity constraints.<span style="mso-spacerun: yes;">  </span>Results from the regression are then used in conjunction with other data to numerically test the first order necessary profit maximization conditions.<span style="mso-spacerun: yes;">  </span>The results indicate that over 80% of NFL teams set ticket prices in a manner consistent with gate receipt and profit maximization.</span></span></p>

ON INTEREST RATE POLICY AND EQUILIBRIUM STABILITY UNDER INCREASING RETURNS: A NOTE

Bullard and Mitra [Journal of Monetary Economics 49 (2002), 1105–1130] find that, in a New Keynesian economy without capital and under four variants of the Taylor rule, the Taylor principle is sufficient to guarantee both determinacy and E-stability of equilibrium in most cases. Xiao [Macroeconomic Dynamics 12 (2008), 22–49] claims that with capital and mild increasing returns the Taylor principle cannot guarantee either determinacy or E-stability with any of the four rules. In this paper we show that in the Calvo-type sticky price models a second-order condition for profit maximization must be satisfied in firms' pricing decision problem, and we point out that the examples given in Xiao's paper to support his conclusion violate this condition. After imposing this condition, we find that increasing returns have little effect on determinacy and E-stability under two of the policy rules but significant effects under the other two. These results are obtained in models both with and without capital.