<p>I'm somewhat new to economics, and I'm working on a strange model: It involves webmasters of web pages acting as producers of clicks that can be consumed by other webmasters, who pay per click.</p>
<p>I'm running into a bit of an oddity, where the &quot;producer&quot; webmasters seem to have no variable costs at all. For example, they would simply incur a cost upfront for setting up the SEO on a web page that acts like a feeder to the web page of the &quot;consumer&quot; webmaster. Clicks from producer to consumer then follow, but the number of these clicks is fairly independent of any additional labor of the producer webmaster. Thus, the only cost, which is the cost of the SEO, acts like a fixed cost.</p>
<p>How do I analyze such a model?</p>

CC BY-SA 4.0
2020-08-23T13:47:24.447Z
What do you mean by "How do I analyze such a model"? What are you trying to analyze, what are you trying to measure, what is your hypothesis,etc.
Giskard
CC BY-SA 4.0
2020-08-23T14:03:00.333Z
@Giskard: I'm trying to understand things about the short-term and long-term behavior, like equilibrium market price assuming perfect competition, and so on. I'm basically following a standard microeconomics (open) text book and trying to work out results like you would in a conventional model which has variable costs. Except, instead of working on the conventional model, I'm trying to see how my model would behave.
Joebevo
CC BY-SA 4.0
2020-08-23T14:07:48.790Z
@Joebevo well if that’s the case then you can model it the same way as you would model perfect competition with just fixed costs. For example use $\Pi= PQ-C(Q)$ where C(Q) is just some fixed constant like $C(Q)=c$ - that would be an example of profit function where firm has only fixed cost and also perfect competition is assumed by price being treated as given. Further you can proceed solving it as you would normally do find the FOC equate them to zero etc...
1muflon1
CC BY-SA 4.0
2020-08-23T14:39:53.930Z
@1muflon1: Thanks. I was trying marginal analysis and it wasn't working out too well. I don't understand the part about "price being treated as given". Is that referring to the firm being a price taker? And for the FOC, if I differentiate the profit function w.r.t Q, that would just give me P=0 when I set it to zero. I don't know what the significance of that is.
Joebevo
CC BY-SA 4.0
2020-08-23T14:56:28.250Z
@Joebevo yes I actually meant to say that firm is a price taker - I made a brainfart sorry. And yes that’s actually correct result in a completely perfect competitive market a price for a product with no marginal costs would be zero. This is why intellectual property rights exist for example. Or why government has to provide certain goods. In absence of any intervention there would be little incentive for firms to provide such goods since price is driven to 0 but fixed costs remain. For example, in absence of copyrights a film arguably price for streaming a film would be driven to 0
1muflon1
CC BY-SA 4.0
2020-08-23T14:57:41.330Z
What about the fact that the SOC is non-negative (i.e. zero) in this case? It should be negative, right?
Joebevo
CC BY-SA 4.0
2020-08-23T16:38:37.447Z
if SOC is zero that just means you have some corner or no unique solution - however in this case the choice variable is q. In this that can be argued to be q=0 assuming that firm that never starts producing will incur no cost
1muflon1
<microeconomics>
How do I analyze an economic model with no variable costs?
Joebevo
# How do I analyze an economic model with no variable costs?

(Asked by: username_0 on 2020-08-23)

I'm somewhat new to economics, and I'm working on a strange model: It involves webmasters of web pages acting as producers of clicks that can be consumed by other webmasters, who pay per click.

I'm running into a bit of an oddity, where the "producer" webmasters seem to have no variable costs at all. For example, they would simply incur a cost upfront for setting up the SEO on a web page that acts like a feeder to the web page of the "consumer" webmaster. Clicks from producer to consumer then follow, but the number of these clicks is fairly independent of any additional labor of the producer webmaster. Thus, the only cost, which is the cost of the SEO, acts like a fixed cost.

How do I analyze such a model?

**Tags:** microeconomics

> **Comments:**
> **username_1**: What do you mean by "How do I analyze such a model"? What are you trying to analyze, what are you trying to measure, what is your hypothesis,etc.  
> **username_0**: @username_1: I'm trying to understand things about the short-term and long-term behavior, like equilibrium market price assuming perfect competition, and so on. I'm basically following a standard microeconomics (open) text book and trying to work out results like you would in a conventional model which has variable costs. Except, instead of working on the conventional model, I'm trying to see how my model would behave.  
> **username_2**: @username_0 well if that’s the case then you can model it the same way as you would model perfect competition with just fixed costs. For example use $\Pi= PQ-C(Q)$ where C(Q) is just some fixed constant like $C(Q)=c$ - that would be an example of profit function where firm has only fixed cost and also perfect competition is assumed by price being treated as given. Further you can proceed solving it as you would normally do find the FOC equate them to zero etc...  
> **username_0**: @username_2: Thanks. I was trying marginal analysis and it wasn't working out too well. I don't understand the part about "price being treated as given". Is that referring to the firm being a price taker? And for the FOC, if I differentiate the profit function w.r.t Q, that would just give me P=0 when I set it to zero. I don't know what the significance of that is.  
> **username_2**: @username_0 yes I actually meant to say that firm is a price taker - I made a brainfart sorry. And yes that’s actually correct result in a completely perfect competitive market a price for a product with no marginal costs would be zero. This is why intellectual property rights exist for example. Or why government has to provide certain goods. In absence of any intervention there would be little incentive for firms to provide such goods since price is driven to 0 but fixed costs remain. For example, in absence of copyrights a film arguably price for streaming a film would be driven to 0  
> **username_0**: What about the fact that the SOC is non-negative (i.e. zero) in this case? It should be negative, right?  
> **username_2**: if SOC is zero that just means you have some corner or no unique solution - however in this case the choice variable is q. In this that can be argued to be q=0 assuming that firm that never starts producing will incur no cost  

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## 0 answers

