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Stability of Production Prices: A Modification to the Full‐Cost Approach

Kirill Borissov ()

Manchester School, 1999, vol. 67, issue 3, 367-391

Abstract: An approach to the problem of the stability of production prices generalizing the full‐cost approach is proposed. It is based on comparing current profit rates with a target level: if the current profit rate in a sector is lower (higher) than the target level, the price of the product of this sector increases (decreases). It is proved that this leads to stability of the production prices in two models with fixed capital. In the first model, it is assumed that we are given a nominal wage rate and that the target profit rate is formed exogenously. In the second model, we are implicitly given a real wage rate and the target profit rate is formed endogenously.

Date: 1999
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