A DYNAMIC THEORY OF A FIRM: AN APPLICATION OF 'ECONOMIC FORCES'

Matti Estola ()
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Matti Estola: University of Joensuu, Department of Economics, P.O. Box 111, FIN-80101 Joensuu, Finland

Advances in Complex Systems (ACS), 2001, vol. 04, issue 01, 163-176

Abstract: Static neoclassical theory of a firm and its dynamization by dynamic optimization assume profit functions inconsistent with each other. As a solution to this, we present a dynamic theory of a firm which is consistent with the static neoclassical theory. We define the 'economic forces' which act upon the production of the firm and show that the adjustment of production in a profit-seeking way may be stable or unstable. Explosive unstable production dynamics may occur due to 'economies of scale' or due to the development of wealth or technology; in stable cases the adjustment leads to the profit maximizing situation. Our model provides a micro basis for the modeling of economic growth at macro-level.

Keywords: Production dynamics; economic forces; uncertainty; JEL D21; JEL O12 (search for similar items in EconPapers)
Date: 2001
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DOI: 10.1142/S0219525901000036

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