PROFIT-RATE MAXIMIZATION IN INTERDEPENDENT MARKETS - A RESEARCH NOTE

In the theory of the firm it is conventional to regard firms as (total ) profit-maximizing institutions. In this paper it is shown that the i nterdependence among firms that is characteristic of monopolistic comp etition makes it plausible for them also to choose to maximize the rat e of profit on capital advanced. For a homogeneous product with inelas tic total demand, such as gasoline retailing, firms acting as rational agents, facing fixed costs in a homogeneous spatial market, and choos ing to set prices under rate of profit-maximization can achieve higher total profits than firms operating under total profit-maximizing obje ctives.