Reply To: Cartels and profits


I don’t see what cartels and monopolies have to do with your questions. The entrepreneurs of every business enterprise regardless of the circumstances concerning other entrepreneurs use economic calculation to make their production decisions. They choose those lines of production that generate the greatest net income and invest in those lines of capital that generate the greatest net worth.

In your example, a light bulb company would estimate the revenues and costs from bulbs with different features, such as life expectancies, luminosity, color, etc., and produce those that generate the greatest net income. For each chosen line of production, the entrepreneur would ask a price that maximizes revenue, which would be at the mid-point of the demand curve for that line. It doesn’t matter what other entrepreneurs are doing, the best strategy for any entrepreneur is to restrict output and raise price to the mid-point of the demand curve for his product and no further.

In choosing its capital capacity, the light bulb company would estimate the asset values and liabilities associated with different configurations of capital capacity and choose those with the greatest net worth. Economies of scale is just one technical feature of the different options available. It is unlikely that an entrepreneur will choose a configuration with a significant range of unexploited economies of scale. To do so means that until he can expand production significantly he has invested in excess capacity.

Take a look at the relevant sections of Murray Rothbard’s book, Man, Economy, and State:,%20Economy,%20and%20State,%20with%20Power%20and%20Market.pdf