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The Firm in General Equilibrium Theory

In: The Corporate Economy

Author

Listed:
  • Kenneth J. Arrow

Abstract

In classical theory, from Smith to Mill, fixed coefficients in production are assumed. In such a context, the individual firm plays little role in the general equilibrium of the economy. The scale of any one firm is indeterminate, but the demand conditions determine the scale of the industry and the demand by the industry for inputs. The firm’s role is purely passive, and no meaningful boundaries between firms are established. No doubt the firm or the entrepreneur was much discussed and indeed given a central role in the informal parts of the discussion; the role was that of overcoming disequilibria. When profit rates were unequal, profit-hungry entrepreneurs moved quickly, with the end-result of eliminating their functions.

Suggested Citation

  • Kenneth J. Arrow, 1971. "The Firm in General Equilibrium Theory," Palgrave Macmillan Books, in: Robin Marris & Adrian Wood (ed.), The Corporate Economy, chapter 3, pages 68-110, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-1-349-01110-0_3
    DOI: 10.1007/978-1-349-01110-0_3
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    Cited by:

    1. Alexandre Chirat, 2021. "The correspondence between Baumol and Galbraith (1957–1958) An unsuspected source of managerial theories of the firm," EconomiX Working Papers 2021-35, University of Paris Nanterre, EconomiX.
    2. Eliasson, Gunnar, 1982. "On the Optimal Rate of Structural Adjustment," Working Paper Series 74, Research Institute of Industrial Economics.
    3. Herbert Gintis & Herbert Gintis, 1976. "The Nature of Labor Exchange and the Theory of Capitalist Production," Review of Radical Political Economics, Union for Radical Political Economics, vol. 8(2), pages 36-54, July.

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