Knowledge that Transforms

The purpose of this paper was to take a simple model of two firms in competition, with explicit cost functions and an explicit demand function, and to examine the behavior of the firms on the basis of each of several theories. It was assumed there is no collusion among the buyers, so that the demand function remains fixed and describes the action of the market. Each theory discussed, except the 'contract curve' of Edgeworth, gives a uniquely determined pair of production rates, and all the others, with the exception of the Von Neumann and Morgenstern solution, determine the profit made by each of the two producers. Graphs are given showing the production rates and profits for the various solutions, and will serve to compare the effect of the different formulations on the behavior of the firms.