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The division of labor and the extent of the market

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  • Haiwen Zhou

Abstract

A firm’s degree of specialization is modeled as the number of different goods it produces. When a firm chooses its degree of specialization, it faces a tradeoff between the fixed cost and the marginal cost of production. A firm’s degree of specialization is shown to increase with the extent of the market. Meanwhile, the real wage rate, as a measure of the extent of the market, is endogenously determined in the model and is shown to increase with the division of labor. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Haiwen Zhou, 2004. "The division of labor and the extent of the market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 195-209, July.
    • Handle: RePEc:spr:joecth:v:24:y:2004:i:1:p:195-209
    DOI: 10.1007/s00199-003-0415-y
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    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General

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