The Profitable Theory of the Firm

28 Pages Posted: 23 Jun 2008 Last revised: 9 Oct 2008

See all articles by Hak Choi

Hak Choi

Chienkuo Technology University - Department of International Business; Chung-Hua Institution for Economic Research

Date Written: August 2008

Abstract

This paper shows that the mathematics of the neoclassical theory of the firm is inconsistent, that constant returns-to-scale is a linear algebra misspecification, that minimum average cost is not an efficiency measure, and that the short run marginal cost curve is not a supply curve. A consistent model is developed that emphasizes upgrade of efficiency, rather than mere efficiency. Higher efficiency leads to huge profit of a perfectly competitive firm. Another consistent model for monopoly is also developed which shows that a monopoly operates only on the demand curve, and any regulation must end up with lower welfare.

Keywords: Constant returns to scale, Zero Profit, Marginal cost, Production efficiency, Allocative efficiency, Monopoly, Monopsony, Output supply, Factor demand.

JEL Classification: D21, D24

Suggested Citation

Choi, Hak, The Profitable Theory of the Firm (August 2008). Available at SSRN: https://ssrn.com/abstract=1149926 or http://dx.doi.org/10.2139/ssrn.1149926

Hak Choi (Contact Author)

Chienkuo Technology University - Department of International Business ( email )

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Changhua City, 500
Taiwan
+886 91 901-4618 (Phone)

HOME PAGE: http://euntold.wordpress.com

Chung-Hua Institution for Economic Research ( email )

75, Changhsin St.
Taipei
Taiwan

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