Pseudoproduction, Pseudocost and Profit Functions in Monopoly from the Dual Perspective

Vrankić Ilko () and Krpan Mira ()
Additional contact information
Vrankić Ilko: Faculty of Economics and Business, University of Zagreb, Croatia
Krpan Mira: Faculty of Economics and Business, University of Zagreb, Croatia

Business Systems Research, 2016, vol. 7, issue 2, 49-64

Abstract: Background: Duality in the microeconomic theory enables us to represent consumers’ preferences and production technology with various dual functions satisfying certain regularity conditions.Objectives: Since the basis for the application of duality in the microeconomic theory is the price taking behaviour, this paper takes the challenge of applying principles of duality to a monopolistic case where a single producer has an influence on the price which it charges for its product.Methods/Approach: The standard approach of deriving the profit function for the monopolist from the production function and the defined pseudoproduction function is accompanied by an alternative approach in which the starting point is the pseudocost function. Starting from the derived profit function, the pseudoproduction function and the pseudocost functions are recovered and a version of Hotelling’s lemma is given.Results: The structure of the profit maximization problem in a monopolistic case was made similar to the structure of the profit maximization problem in the perfectly competitive case and it is shown that all starting functions can be recovered back from derived functions. A version of Hotelling’s lemma is illustrated, which brings us indirectly from the profit function to the supply function.Conclusions: By introducing the pseudoproduction function in the profit maximization model of a monopolist, the structure of the problem becomes similar to the perfectly competitive case and duality results can be applied. The profit function is derived from the pseudoproduction and the pseudocost function, and all starting functions are recovered back from the derived profit function.

Keywords: duality; pseudoproduction function; pseudocost function; profit function; Hotelling’s lemma (search for similar items in EconPapers)
JEL-codes: D (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/bsrj-2016-0012 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bit:bsrysr:v:7:y:2016:i:2:p:49-64

DOI: 10.1515/bsrj-2016-0012

Access Statistics for this article

Business Systems Research is currently edited by Mirjana Pejić Bach

More articles in Business Systems Research from Sciendo
Bibliographic data for series maintained by Peter Golla ().