Consistent firm choice and the theory of supply |
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Authors: | Indraneel Dasgupta |
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Affiliation: | (1) School of Economics, University of Nottingham, NG7 2RD Nottingham, UK |
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Abstract: | Summary. This paper analyzes the problem of deriving predictions, regarding supply behavior of a competitive firm, from prior consistency postulates about input-output choices made by such a firm. It extends the literature by introducing a consistency postulate for firm choice, which is weaker than profit-maximization. This consistency postulate is nevertheless both necessary and sufficient for supply responses predicted by the standard theory of firm choice based on the postulate of profit-maximization. Furthermore, our rationality postulate, in conjunction with another condition, is shown to be equivalent to firm choice behavior that can be rationalized in terms of profit maximization.Received: 11 April 2003, Revised: 26 April 2004, JEL Classification Numbers: D21.Indraneel Dasgupta: I thank Bhaskar Dutta and two anonymous referees for helpful comments on earlier versions. |
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Keywords: | Weak axiom of profit maximization Supply inequality Non-reversibility. |
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