The industry supply function and the long-run competitive equilibrium with heterogeneous firms

Ignacio Esponda and Demian Pouzo

Journal of Economic Theory, 2019, vol. 184, issue C

Abstract: In developing the theory of long-run competitive equilibrium (LRCE), Marshall (1890) used the notion of a representative firm. The identity of this firm, however, remained unclear. Subsequent theory either focused on the case where all firms are identical or else incorporated heterogeneity but disregarded the notion of a representative firm. Using Hopenhayn's (1992) model of competitive industry dynamics, we extend the theory of LRCE to account for heterogeneous firms and show that the long-run supply function can indeed be characterized as the solution to the minimization of a representative average cost function.

Keywords: Long-run competitive equilibrium; Representative firm (search for similar items in EconPapers)
JEL-codes: D21 D41 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The Industry Supply Function and the Long-Run Competitive Equilibrium with Heterogeneous Firms (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:184:y:2019:i:c:s0022053119300985

DOI: 10.1016/j.jet.2019.104946

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