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Inferring Agent Behavior and Economic Information, with Free Entry and Exit of Firms

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  • Hernán Vallejo

    ()

  • Miguel Espinosa

    ()

Abstract

This article proposes an identity regarding economic outcomes when producers maximize profits, with free entry and exit of firms. The identity links consumer and producer theory and leads to several results that contribute to understand what should -and should not- be expected under the assumptions made, from the behavior of firms and households, and from the technology of a firm. Given that unit prices are usually known, the identity also allows to infer the value of a range of economic variables, when reasonable information is available on the price elasticity of the residual demand, the marginal revenue associated to the residual demand, the marginal cost or the elasticity of scale.

Suggested Citation

  • Hernán Vallejo & Miguel Espinosa, 2011. "Inferring Agent Behavior and Economic Information, with Free Entry and Exit of Firms," DOCUMENTOS CEDE 008909, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:008909
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2011-25.pdf
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    References listed on IDEAS

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    1. Hanoch, Giora, 1975. "The Elasticity of Scale and the Shape of Average Costs," American Economic Review, American Economic Association, vol. 65(3), pages 492-497, June.
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    More about this item

    Keywords

    Price elasticity of demand; elasticity of scale; free entry and exit of firms; homogeneous production function.;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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