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A Dynamic Theory Of A Firm: An Application Of 'Economic Forces'

Author

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  • MATTI ESTOLA

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

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.

Suggested Citation

  • Matti Estola, 2001. "A Dynamic Theory Of A Firm: An Application Of 'Economic Forces'," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 163-176.
    • Handle: RePEc:wsi:acsxxx:v:04:y:2001:i:01:n:s0219525901000036
    DOI: 10.1142/S0219525901000036
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    Cited by:

    1. Matti Estola, 2020. "How Covid-19 Pandemic Changes the Theory of Economics?," Papers 2012.04571, arXiv.org.

    More about this item

    Keywords

    Production dynamics; economic forces; uncertainty; JEL D21; JEL O12;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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