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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 Constant Returns

Production with Constant Returns

Chapter:
(p.108) Chapter 11 Production with Constant Returns
Source:
General Equilibrium Theory of Value
Author(s):

Yves Balasko

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691146799.003.0011

This chapter examines the net supply correspondence of a constant returns to scale firms under suitable convexity and smoothness assumptions. These assumptions are comparable to those used in the previous chapters for consumers and production with decreasing returns to scale. The chapter starts by formulating constant returns to scale production by way of production sets with arbitrary numbers of inputs and outputs. It then addresses the profit maximization problem of a constant returns to scale firm. That problem does not always have a solution. More accurately, if some feasible activity yields a strictly positive profit at some given prices, then it suffices to consider an arbitrarily large multiple of that activity vector to get a feasible activity that yields an arbitrarily large profit at the same prices. The firm can then make an arbitrarily large profit.

Keywords:   general equilibrium model, net supply correspondence, constant returns, scale firms

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