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Summer 2023

ISSN 0890-913X

Volume 38, Number 2

Categories: Summer 2023 | Innovation | Market Studies

Beyond Simple Profit Maximization in Uncertain Markets: How Innovation and Entry Change Supply Curves and Producer Surplus

John B. Horowitz, Ball State University

Michael A. Karls, Ball State University

Juan Sesmero, Purdue University

T. Norman Van Cott, Ball State University

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TheJournalofPrivateEnterprise38(2),2023,55-77BeyondSimpleProfitMaximizationinUncertainMarkets:HowInnovationandEntryChangeSupplyCurvesandProducerSurplusJohnB.Horowitz*BallStateUniversityUnitedStatesofAmericaMichaelA.KarlsBallStateUniversityUnitedStatesofAmericaJuanSesmeroPurdueUniversityUnitedStatesofAmericaT.NormanVanCottBallStateUniversityUnitedStatesofAmericaAbstractThisarticlechallengestheconventionalwisdomthatdecreasesintotalrevenuealwayscausefirmstobeworseoff.Instead,innovationsandentrycausingclockwiserotationsorparallelsupplyshiftscanincreaseproducersurplusevenwhentotalrevenuedecreases.Textbooksclaimingproducersareworseoffwhentotalrevenuedeclinesaremisleadingbecauseproducersurplusincreasesinitiallyevenwhenrevenuedeclines.Schumpeterianentrepreneurswhocreateinnovationsthatbenefitlow-productivity/high-marginal-costproductioncauseclockwisesupplyrotations,andentrepreneursthatcreateinnovationsthatprovidesimilarbenefitstobothhigh-andlow-productivityproducerscauseparallelsupplyshifts.Thearticle'sfocusonentryandinnovationillustratestheimportanceofJulianSimon'sargumentthatfocusingonallocationratherthaninnovationoftenleadstowrongconclusionsandAlchian'sargumentthatuncertainforesightmakesprofitmaximizationmeaninglessasaguidetospecifiableaction.Thoughproducersurplusincreasesthendeclines,consumerandtotal*TheauthorsappreciatethecommentsofCecilE.Bohanon,JamesE.McClure,andCorneliaA.VanCott.

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Title	Beyond Simple Profit Maximization in Uncertain Markets: How Innovation and Entry Change Supply Curves and Producer Surplus
Authors/Creators:	John B. Horowitz, Ball State University Michael A. Karls, Ball State University Juan Sesmero, Purdue University T. Norman Van Cott, Ball State University
Year:	2023
Volume:	38
Number:	2
Pages:	55 - 77
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	innovation, technological change, entry, producer surplus, consumer surplus, total surplus, supply elasticity

Citation:
Horowitz, John B.; Karls, Michael A.; Sesmero, Juan; Van Cott, T. Norman / 2023. "Beyond Simple Profit Maximization in Uncertain Markets: How Innovation and Entry Change Supply Curves and Producer Surplus." The Journal of Private Enterprise, 38(2): 55-77.