mortgages and loans

Scientific models simplify conditions in order to help us understand complex relationships. Economic models like the price-taker and price-searcher models are no exception. But these models leave out some important elements of the business decision-making process. Furthermore, they gloss over the complexity of other decisions that must be made by real-world entrepreneurs.
Will profits increase if prices are raised (or lowered)’?To get an answer to this question, real-world business decision makers cannot go into a back room and look at a demand-cost diagram. Instead, they must search for clues, experiment with actual price changes, and interpret what they see, often using a great deal of “seat-of-the-pants“ judgment. Our model doesn’t reveal precisely how this is done, but it highlights the fact that entrepreneurs are strongly motivated to find the profit-maximizing price. Those that are most successful will at least approximate this objective, and the outcome will be as if they had deliberately chosen the MR = MC price and output combination of our model.
Although the competitive price-searcher model explains how entrepreneurs will re- act to profits and losses in a specific market, it does not explain how and when new products will be developed or new production techniques applied. How will consumers react to a potential new product? Can it be produced profitably? Will a new production process or alternative technology reduce cost? Can per-unit costs be reduced if the firm offers a different combination of products and services? Here, again, the marginal principle applies: if the change adds more to revenue than it does to cost, it should be made. But how much of a change should be made? Up to the point where MC = MR, of course. Identifying this point for each potential change, however, is difficult. Such decisions generally involve an important variable that is omitted from our economic models: entrepreneurship.