Study on the Production Technology, Elasticities and Market Structure Impact on Profit Formation

Abstract

The size of the profit in a firm or a production system not only depends on the quantity of inputs and outputs, but also depends on the market structure that means the market is perfect competition or imperfect competition. In general, the relationship between output and inputs can be defined as the production structure, which is usually decided by production technology. Therefore, under the market economy system, the production structure regulation has to follow the market structure variation. Here we assume that production technology is a C-D function, and then to determine the effects of different market structures, which we find, they are in close contacted with both production and market structures, especially some variations of elasticities. Through out a series of deduction and equilibrium analysis, the restricted conditions of the maximum profit have been found. Therefore, the consequences show that the values of elasticities have taken an important role in profit obtained for producer, the profits in a perfect competition market hardly depends on market demand elasticity, in which production elasticity requires rather small. However, in the imperfect competition market, monopoly make both price of demand and production elasticities impact on the profit. Those also prove that market monopoly factors make production lose efficiency, or lead to the market failure. In the actual process of production and management, production elasticities and related market information should be strengthened for measurement, which will be useful for analysis price fluctuation risk and management decision.