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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

Ali Hosseiny and Mauro Gallegati ()

Physica A: Statistical Mechanics and its Applications, 2017, vol. 470, issue C, 51-59

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.

Keywords: Intensive variables; Extensive variables; Cost disease phenomenon; Neoclassical economy; Aggregation; Labor income (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:phsmap:v:470:y:2017:i:c:p:51-59