A Model of Manufacturers and Buyers of Cars over the Business Cycle Illustrating Competitive Manufacturing

We illustrate competitive manufacturing with an original theoretical model of manufacturers and buyers of cars over a business cycle that have peak and off-peak demand periods. There are two types of plants manufacturing cars, plant_K and plant_L, each having linear total costs with absolute capacity limits. Plant_K operates with low VC and high FC by being capital intensive. Plant_K is output-rates rigid since it produces throughout the business cycle and always at capacity. Plant_L operates with low FC and high VC by relying on outsourcing major components and parts. Plant_L is output-rates flexible since it produces only in the peak-demand periods. We show results under SRMC pricing. Then we examine an alternate arrangement which