>
> As a non-economist this makes sense to me. If I was
> selling something why on
> earth would I want to drop the price just because
> the cost fell??? I think I
> would be celebrating the increase in profits! Who
> wouldnt? The only reasons
> I can see to drop the price (although there may be
> other reasons) is if the
> competition was undercutting me or if the demand for
> the product bottomed
> out and I couldnt sell.
>
But this is the puzzle for neoclassical economics. If you don't drop your price when costs fall, why don't I drop mine to sell more quantity? And then you must drop yours to compete. That's what the model predicts.
jks
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