Price Decisions and Employment Equilibrium

Abstract

Instead of expected profit maximization, this‘ paper assumes a safety-first objective so that the firm will set a higher price for its product if cost or demand is higher, which has macroeconomic implications, With all firms in the economy as price setters, there is an equilibrium of prices which entails an employment equilibrium, and vice versa. The model developed can account for increasing unemployment with inflation, and allows for procyclical real wages.