The Theory of the Firm in "Long-Run" Equilibrium

Abstract

In a recent series of articles,' economists have investigated the comparative statics of the neoclassical firm in a competitive environment with the specific proviso that output price adjusts in response to changes in factor prices. The older theory of the firm, such as is found, for example, in Paul Samuelson (1947), is deficient in this regard. Metaphors such as short run have been used to gloss over the inconsistency of holding output price constant in the face of changing costs through changing factor prices. In this paper, a simple yet thorough analysis of a firm in a competitive industry, i.e., a firm facing zero entry and adjustment cost conditions, is given. New results pertaining to restrictions on the behavior of such firms are offered. Also, the length and complexity of established results is substantially reduced.

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