Re: Keynes and competition

[macinnes@xxxxxxxxxxxxxxx (David MacInnes)]

>From my perspective, and I think Keynes', the missing concept here is expected
price. Given the costs of production, output and employment vary directly with
expected price. At an individual firm level, with given costs and diminishing
returns, output and employment increase as expected price increases; or, in more
familiar words, the horizontal demand curve of the individual capitalist drifts
upward as expected price increases and drifts downward as expected price falls.
Hence, it is the expectations of capitalists about future prices that determines
their level of output and employment.

David MacInnes

Kazuhiro Kurose wrote:

> > I think one needs to remember that although the demand curve for the firm
> is
> > horizontal, the demand curve of the industry is not.  Thus, it is not the
> > demand for the output of a small company, which is insignificant seen
> > against the whole, that is relevant, but the industry demand.  In
> addition,
> > the company would not want to produce more than the quantity determined by
> > the point where his marginal revenue and cost are equal.  Thus, even if
> the
> > company could expect to sell everything it produces at the going market
> > price, it would not want to.
>
> I used the term "individual demand curve" to express that individual firms
> (capitalists) expect the demand for goods produced by themselves. In perfect
> competition, therefore, individual demand curve is flat because they expect
> that they could sell as much goods as they want. And I would like hereafter
> to use the term "market demand curve"to express the behavior of consumers in
> a single market. In normal case, therefore, the curve is downward sloping.
> The co-existence of vertical individual demand curve and downward sloping
> market demand curve has no contradiction only if the equality of supply and
> demand is held in the market. Unless the equality is held, individual demand
> curve must be also downward sloping. Therefore, we must move into the
> imperfect competition world, as soon as the disequilibrium arises in the
> market. Even if market demand curve is downward sloping in perfect
> competition world, it is absolutely sure for individual firms to able to
> sell the goods however they want. In imperfect competition world, however,
> where individual demand curve is downward sloping as well as maket demand
> curve, individual firms couldn't expect that the could sell the goods
> however they want. In other words, they have the demand constraint.