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The industry supply function and the long-run competitive equilibrium with heterogeneous firms

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  • Esponda, Ignacio
  • Pouzo, Demian

Abstract

In developing the theory of long-run competitive equilibrium (LRCE), Marshall (1890) used the notion of a representative firm. The identity of this firm, however, remained unclear. Subsequent theory either focused on the case where all firms are identical or else incorporated heterogeneity but disregarded the notion of a representative firm. Using Hopenhayn's (1992) model of competitive industry dynamics, we extend the theory of LRCE to account for heterogeneous firms and show that the long-run supply function can indeed be characterized as the solution to the minimization of a representative average cost function.

Suggested Citation

  • Esponda, Ignacio & Pouzo, Demian, 2019. "The industry supply function and the long-run competitive equilibrium with heterogeneous firms," Journal of Economic Theory, Elsevier, vol. 184(C).
    • Handle: RePEc:eee:jetheo:v:184:y:2019:i:c:s0022053119300985
    DOI: 10.1016/j.jet.2019.104946
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    References listed on IDEAS

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    Cited by:

    1. Enrico De Monte, 2020. "Entry, Exit and Productivity: Evidence from French Manufacturing Firms," Working Papers of BETA 2020-07, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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    More about this item

    Keywords

    Long-run competitive equilibrium; Representative firm;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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