Simulation of the business firm using several different pricing approaches

This paper examines the behaviour of firms over time using different economic models as a basis for setting price. A simulation model was created in order to examine the behaviour of the economic models over time. The paper examines the behaviour of a firm using two standard neoclassical economic models: a model built on the principle of marginalism, ie. the firm produces at the point where marginal cost equals marginal revenue, and a model built under the assumption of average cost pricing. The paper also examines the behaviour of a firm over time using a variant of the average cost model developed by the author. The results of the simulation show that the long run behaviour of the firm is significantly different depending on the pricing model chosen.