The Neoclassical Theory of the Firm: A Note on the Production and Investment Decisions

Douglas Purvis

Working Paper from Economics Department, Queen's University

Abstract: The neoclassical theory of the firm has developed along two distinct lines. The static theory develops the implications of profit maximization for the determination of factor demands, output, and equilibrium firm size. The dynamic theory uses intertemporal optimization to analyze the investment cum growth decisions of the firm. The paper presents a simple exposition of the latter theory using the familiar isoquant diagram. Increasing, decreasing and constant returns to scale, and external and internal adjustment costs are studied. Of principal interest is the close relationship between factors determining the firm's equilibrium size and those determining it growth rate.

Pages: 19
Date: 1975
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Journal Article: The Neoclassical Theory of the Firm: A Note on the Production and Investment Decisions (1976)
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