Profit Maximization Revisited: Considering the Role of Hedonic Pricing Eduardo Segarra Professor of Agricultural and Applied Economics Texas Tech University

 

  The PROFIT maximization conditions without HEDONICS are: VMPx = rx perfect competition in BOTH input and output markets VMPx = rx (1 + Es-1) perfect competition in the output market but NOT in the input market VMPx (1 + Ed-1) = rx perfect competition in the input market but NOT in the output market VMPx (1 + Ed-1) = rx (1 + Es-1) NO perfect competition in BOTH input and output

Given Y = f(X), where fx > 0 and fxx <0   Where Y is the level of output produced and X is amount of input used Assuming an “output quality” relation such as Q = g(X), where gx represents the marginal change in quality of output due to a change in the level of input use and assuming Py = w(Y, Q)

The PROFIT maximization conditions with HEDONICS are:   VMPx + Y Wq gx = rx perfect competition in BOTH input and output markets VMPx + Y Wq gx = rx (1 + Es-1) perfect competition in the output market but NOT in the input market VMPx (1 + Ed-1) + Y Wq gx = rx perfect competition in the input market but NOT in the output market VMPx (1 + Ed-1) + Y Wq gx = rx (1 + Es-1) NO perfect competition in BOTH Input and output markets These HEDONIC relationships could be extended to the INPUT SIDE ..... This would be the case in which the QUALITY of the INPUT used is acknowledged through its price