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The (Normal) Rate of Capacity Utilization at the Firm Level

  • Michalis Nikiforos

This paper examines the endogeneity (or lack thereof) of the rate of capacity utilization in the long run at the firm level. We provide economic justification for the adjustment of the desired rate of utilization toward the actual rate on behalf of a cost-minimizing firm after examining the factors that determine the utilization of resources. The cost-minimizing firm has an incentive to increase the utilization of its capital if the rate of the returns to scale decreases as its production increases. The theory of economies of scale provides justification for this kind of behavior. In this manner, the desired rate of utilization becomes endogenous.

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File URL: http://www.levyinstitute.org/pubs/wp_737.pdf
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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_737.

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Date of creation: Nov 2012
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Handle: RePEc:lev:wrkpap:wp_737
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
  2. Peter Skott, 2008. "Growth, instability and cycles: Harrodian and Kaleckian models of accumulation and income distribution," UMASS Amherst Economics Working Papers 2008-12, University of Massachusetts Amherst, Department of Economics.
  3. Matthew D. Shapiro, 1985. "Capital Utilization and Capital Accumulation: Theory and Evidence," Cowles Foundation Discussion Papers 736, Cowles Foundation for Research in Economics, Yale University.
  4. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Oxford University Press, vol. 8(1), pages 25-40, March.
  5. Marc Lavoie & Gabriel Rodriguez & Mario Seccareccia, 2004. "Similitudes and Discrepancies in Post-Keynesian and Marxist Theories of Investment: A Theoretical and Empirical Investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 127-149.
  6. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
  7. Peter Skott, 2012. "Theoretical And Empirical Shortcomings Of The Kaleckian Investment Function," Metroeconomica, Wiley Blackwell, vol. 63(1), pages 109-138, 02.
  8. repec:cup:cbooks:9780521070287 is not listed on IDEAS
  9. Winston, Gordon C., 1974. "Factor substitution, ex ante and ex post," Journal of Development Economics, Elsevier, vol. 1(2), pages 145-163, September.
  10. Lavoie, M., 1992. "The Kaleckian Model of Growth and Distribution and its Neo-Ricardian and Neo-Marxian Critiques," Working Papers 9201e, University of Ottawa, Department of Economics.
  11. Eckhard Hein & Marc Lavoie & Till van Treeck, 2012. "Harrodian Instability And The ‘Normal Rate’ Of Capacity Utilization In Kaleckian Models Of Distribution And Growth—A Survey," Metroeconomica, Wiley Blackwell, vol. 63(1), pages 139-169, 02.
  12. Cowling, Keith, 1981. "Oligopoly, distribution and the rate of profit," European Economic Review, Elsevier, vol. 15(2), pages 195-224.
  13. Michalis Nikiforos & Duncan K. Foley, 2012. "Distribution And Capacity Utilization: Conceptual Issues And Empirical Evidence," Metroeconomica, Wiley Blackwell, vol. 63(1), pages 200-229, 02.
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