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General Equilibrium Theory of Value$
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Yves Balasko

Print publication date: 2011

Print ISBN-13: 9780691146799

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691146799.001.0001

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Production with Decreasing Returns

Production with Decreasing Returns

(p.82) Chapter 9 Production with Decreasing Returns
General Equilibrium Theory of Value

Yves Balasko

Princeton University Press

This chapter is devoted to the theory of the firm. Production consists in the transformation of goods known as inputs into other goods, the outputs. The firm is the center of productive activity. Its activity is represented by a vector in the commodity space. The chapter starts with the definition of the firm's production set, which consists of the activities that are technologically feasible for the firm. It then examines the maximization of the firm's profit subject to the feasibility constraint. The properties of the solution of this maximization problem depend on the structure of the production set. For efficient boundaries of strictly convex sets, the problem of profit maximization has a unique solution. This solution is a function of the price vector and defines the firm's net supply function. Next, the chapter takes the firm's net supply function as a primitive concept and introduces a set of properties that are to be satisfied by these net supply functions.

Keywords:   firm, general equilibrium model, production set, profits, maximization, supply functions

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