Constant Returns to Scale: Can the Neoclassical Economy Exist?
AbstractConstant returns to scale (CRS) is one of the corner-stones of the competitive general equilibrium paradigm of neoclassical economics. This note argues that the equilibrium solutions of this paradigm are not compatible with CRS. CRS implies that all producers (whatever their scale of production) can produce goods at the same unit costs: and this makes self-production a feasible alternative to market production. In the event, an infinite number of equilibria become possible with a mix of markets and self-production. If labor is the only factor of production, self-production becomes the only option: and the market economy ceases to exist.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 45153.
Date of creation: 16 Mar 2013
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Constant returns to scale; competitive paradigm; neoclassical economics; second-best; Lipsey; Lancaster; Samuelson; Arrow; Debreu; Kaldor; Allyn Young; general equilibrium; increasing returns to scale; existence; uniqueness; equilibrium; classical economics; Adam Smith; Ricardo; Pareto-optimality; John Bates Clark; Wicksteed; Mirowski; Austrian;
Find related papers by JEL classification:
- B0 - Schools of Economic Thought and Methodology - - General
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- B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
- B4 - Schools of Economic Thought and Methodology - - Economic Methodology
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-HME-2013-03-23 (Heterodox Microeconomics)
- NEP-HPE-2013-03-23 (History & Philosophy of Economics)
- NEP-MIC-2013-03-23 (Microeconomics)
- NEP-PKE-2013-03-23 (Post Keynesian Economics)
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