I illustrate competitive manufacturing with a simple numerical model of manufacturers and buyers of carsoverabusinesscyclewithoff-peakandpeakdemandperiods. Mymodelhastwotypesofplants manufacturing cars, plantK and plantL, each having linear total costs with absolute capacity limits. PlantK operates with low VC and high FC. PlantK, because of its low VC, produces continuously at capacity in off-peak and in peak periods. PlantL, because of its high VC, shut-downs in off-peak periods and produces at capacity in peak periods. I show results under perfect competition SRMC pricing. I prove mathematically two propositions with this model. Proposition I shows mathematically the conditions of investor indifference to choose between PlantsK and PlantsL. The signiﬁcance is to show a positive aspect of PlantsL, its output-rate ﬂexibility, that some may overlook. Proposition II shows mathematically the conditions that shifting consumption of car purchases from off-peak to peak necessarily adds to consumer surplus. The signiﬁcance is to show the importance of increasing consumer purchases in peak periods. These two propositions are intuitive and common sense.
Professor of Accounting, Bnei Brak, Israel.
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