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Role of Intensive and Extensive Variables in a Soup of Firms in Economy to Address Long Run Prices and Aggregate Data

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  • Ali Hosseiny
  • Mauro Gallegati

Abstract

We review the production function and the hypothesis of equilibrium in the neoclassical framework. We notify that in a soup of sectors in economy, while capital and labor resemble extensive variables, wage and rate of return on capital act as intensive variables. As a result, Baumol and Bowen's statement of equal wages is inevitable from the thermodynamics point of view. We try to see how aggregation can be performed concerning the extensive variables in a soup of firms. We provide a toy model to perform aggregation for production and the labor income as extensive quantities in a neoclassical framework.

Suggested Citation

  • Ali Hosseiny & Mauro Gallegati, 2016. "Role of Intensive and Extensive Variables in a Soup of Firms in Economy to Address Long Run Prices and Aggregate Data," Papers 1608.02523, arXiv.org, revised Jan 2017.
    • Handle: RePEc:arx:papers:1608.02523
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    Cited by:

    1. Hosseiny, Ali, 2017. "A geometrical imaging of the real gap between economies of China and the United States," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 151-161.
    2. Hosseiny, Ali & Absalan, Mohammadreza & Sherafati, Mohammad & Gallegati, Mauro, 2019. "Hysteresis of economic networks in an XY model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 513(C), pages 644-652.

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