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Theoretical Economics Paper
A Practical Short-run Approach to Market Equilibrium
Anthony Horsley and Andrew J Wrobel
April 2005
Paper No' TE/2005/488:
Full Paper (pdf)

JEL Classification: D24; D41; D58

Tags: general equilibrium; fixed-input valuation; nondifferentiable joint costs; wong-viner envelope theorem; peak-load pricing

The “short-run approach” calculates long-run producer optima and general equilibria by building on short-run solutions to the producer’s profit maximization problem and on profit-based valuation of the fixed inputs. We outline this method and illustrate it on an example of peak-load pricing.