[ F. P. R amsey's note] , [July 1928] [b]

 

[See accompanying letter]

 

[Attached to 154 , answered by 155 ; the matter is discussed again at 168 ]

[July 1928]

The primary difficulty is to know what is meant by a particular demand curve. [3]

The manufacturer A asks how much can I sell at price p? This depends on what price the other competitors are supposed to be selling at, and how much they can sell at that price. If you look ahead you see that Harrod assumes that the competitors sell at the same price as A, and further that they sell at that price all they want to i.e. up to the point where it becomes their marginal cost i.e. that the tastes of the demanders are such that, while his competitors can sell as much as they like, A only gets the residuary demand. For every manufacturer to assume that he is in this weak position is absurd.

By a demand curve should be meant an expression of the tastes of the purchasers not of the capacities of the vendors, i.e. we have if the manufacturers sell at prices

p 1 ... p n

they sell amounts x 1 ... x n

where x 1  = f 1 (p 1 ... p n )

x 2  = f 2 (p 1 ... p n )

x n  = f n (p 1 ... p n )

A particular demand curve might then mean either x 1  = f 1 (p 1 ... p n ) conceived as a relation between x 1 , p 1 only p 2 ... p n having constant values, or x 1  = f 1 (p 1 , p 2 ... p n ) which is what Harrod takes but assumes that the functions are such that all the other vendors will be selling as much as they want except n° 1, and again all will be except n°2, and again all will be except [c] n° 3 etc. which is absurd.

The particular demand curves arise from different purchasers having preference in connexion with the different firms. If you neglect such preference you get pure competition.

Harrod really fails to make any presumption in favour of large firms

if each firm (sale x price p) sells above marginal cost by .

This is prima facie the same for all firms being probably bigger the bigger x. H[arrod] makes out it is actually smaller for the big firms because of his illegitimate interpretation of the particular demand curve.

Other minor points.

Why is the seller's price taken to be the same for all firms in the absence of full competition? [4]

Why when the whole problem arises from the firms selling above marginal cost are their sales taken as being at marginal cost, when estimating [d] the particular demand curves.

  1. 1. Harrod, "Notes on Monopoly and Quasi-Competition", here reproduced as essay 6 , [jump to page] .

    2. Letter 151 , [jump to page] .

    3. Harrod, "Notes on Monopoly and Quasi-Competition", essay 6 , [jump to page] .

    4. Harrod, "Notes on Monopoly and Quasi-Competition", essay 6 , [jump to page] .

    1. a. TLS with autograph corrections, one page, in HP II-17. Envelope addressed to Mullion Cove Hotel, with an annotation in Harrod's hand specifying "Letter from Keynes & Frank Ramsey". Reproduced by kind permission of the Provost and Scholars, King's College, Cambridge.

      b. Autograph note, not signed, two pages on two leaves, in HP II-17a. Punctuation often missing in the original.

      c. Ms: this sentence was originally dittoed.

      d. Ms: «when the estimating».


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