the neoclassical theory of production

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1、2theneoclassicaltheoryofproductionAssumingequilibrium,wemayevengosofarastoabstractfromentrepreneursandsimplyconsidertheproductiveservicesasbeing,inacertainsense,exchangeddirectlyforoneanother.—LéonWalras,ElementsofPureEconomics[1874](London:GeorgeAllenandUnwin,1954),225TheFoundationofPro

2、ductionTheory—InputExchangeinaBarterEconomyWesawinChapter1howtwoconsumersinabartereconomyallocatetheirscarceresources(thegoodsintheirpossession)inordertomaximizetheirwell-being.Theothersideofthecoininamoderneconomyisproduction,andtheneoclassicalanalysisofproductionusesexactlythesameframe

3、workasdoesthemodelofconsumersexchanginggoods.Consumersarethelocusof“con-sumption”andfirmsarethelocusof“production.”Inthepuremodelofpro-duction,firmsdirectlyexchangeproductiveinputswithotherfirmsinordertoincreaseoutput.Inouranalysis,wewillassumethereareonlytwofirmsthatusetwoin-puts,capita

4、l(K)andlabor(L),toproducetwogoods,XandY.InputExchangeinaPureBarterEconomyThethreestartingpointsfortheanalysisthatfollowsare:1.Theinputstobeexchanged—theamountsofcapitalandlabor—aregivenatthestartoftheanalysis.2.Theinitialdistributionoftheinputsamongthefirmsisgivenatthestartoftheanalysis.

5、theneoclassicaltheoryofproduction253.Technology—thewayinwhichcapitalandlaborareusedtoproducetheoutputofgoodsXandY—doesnotchangeduringtheperiodofanalysis.Justasconsumersexchangedgoodssoastomaximizeutility,sotoodofirmsexchangeinputssoastomaximizeoutput.Consumershavedifferenttastes(differen

6、tutilityfunctions,ineconomicjargon)andfirmshavedifferenttechnologies(differentproductionfunctions).Firmskeeptradinginputsuntilnofurthertradingcanincreasetheoutputofonefirmwithoutdecreasingtheoutputofanotherfirm.ThisisexactlythesameconceptofParetoeffi-ciencyinexchangedescribedinChapter1,o

7、nlynowappliedtoproduction.ParetoEfficiencyinInputAllocation—Asituationinwhichnofurthertradingofinputscanincreasetheoutputofonefirmwithoutdecreasingtheoutputofanotherfirm.TheGraphicalAnalysisofInputAllocationTheproductionequivalentoftheindifferencecurveistheisoquant,or“sam