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

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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.

Date: 2016-08, Revised 2017-01
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Published in Physica A: Statistical Mechanics and its Applications, 470, 51-59, 2017

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Journal Article: Role of intensive and extensive variables in a soup of firms in economy to address long run prices and aggregate data (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1608.02523

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